Shares of both CareFusion Corporation (CFN) and Becton, Dickinson and Company (BDX) hit new 52-week highs on Nov 21 following the announcement of the expiration of the HSR Act waiting period in connection with the proposed merger deal between the two companies. The companies, last Thursday, announced that the waiting period expired on Nov 19.
Shares of San Diego-based CareFusion touched a new high of $58.68 in mid-day trading on Nov 21, and closed marginally lower at $58.25 on the same day. This translates into a striking one-year return of around 48% and a year-to-date return of roughly 46%.
On the other hand, shares of medical equipment supplier Becton, Dickinson scaled a new high of $131.79 on Nov 21. The company’s shares closed at $130.38 on the same day, translating into a healthy one-year return of roughly 19% and year-to-date return of around 18%.
On Oct 5, 2014, Becton, Dickinson and CareFusion entered into a definitive agreement under which the former would acquire the latter for roughly $12.2 billion in a stock and cash transaction. Per the agreement, Becton, Dickinson will pay a total of $58.00 a share – $49.00 in cash and 0.0777 of a share of Becton, Dickinson – for each share of CareFusion.
The expiration of the HSR (Hart-Scott-Rodino Antitrust Improvements Act of 1976) waiting period satisfies a condition to the proposed acquisition. The acquisition remains subject to certain other conditions and approvals, including the approval of the merger agreement by the CareFusion stockholders and the European Commission under the European Union Merger Regulation.
The deal, expected to close in the first half of 2015, reflects the companies’ response to cost-related healthcare reforms mandated under the Affordable Care Act. By combining their complementary product portfolios and technologies, the companies seek to offer a full range of medical products and more cost-effective care.
In fact, Becton, Dickinson has already identified $250 million in cost cuts that will come from reducing overhead expenses, combining manufacturing footprint and operations. The savings are expected to be fully realized in fiscal 2018.
The transaction is also anticipated to provide Becton, Dickinson with double-digit earnings growth, on an adjusted basis, in the first full year. Apart from earnings growth, the deal is likely to expand EBITDA margins, and deliver strong cash flow and return on invested capital.
Moreover, the merger between CareFusion and Becton, Dickinson has the potential to enhance the combined entity’s geographical reach and focus intensively on emerging market growth. With more than 50% of its revenues coming from overseas markets, Becton, Dickinson will be able to expand international sales of CareFusion, which currently relies on the domestic market and generates about 75% of its revenues from the same.
Currently, both CareFusion and Becton, Dickinson carry a Zacks Rank #3 (Hold).
Better-ranked stocks in the medical/dental supply industry include Merit Medical Systems (MMSI), which sports a Zacks Rank #1 (Strong Buy), and AmerisourceBergen Corporation (ABC), with a Zacks Rank #2 (Buy).
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