Becton, Dickinson and Company (BDX) entered into a mega $12.2 billion deal to acquire San Diego-based CareFusion Corporation (CFN) in an attempt to create a globally leading entity in the medication management and patient safety solutions market. The agreement, unanimously approved by the boards of both companies, marks the latest multibillion-dollar healthcare sector deal.
The acquisition is expected to accelerate Becton, Dickinson’s strategy to improve quality of care, increase efficiencies, reduce healthcare costs and enhance emerging market growth opportunities.
Financial Details
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, representing a premium of approximately 26% to CareFusion’s closing price as on Oct 3.
The deal, subject to regulatory and customary closing conditions as well as CareFusion shareholders’ approval, is expected to close in the first half of next year. At closing, shareholders of Becton, Dickinson will own around 92% of the combined entity while CareFusion shareholders will hold around 8%.
The transaction is expected to provide Becton, Dickinson double-digit earnings growth, on an adjusted basis, in the first full year, and be accretive to net earnings in fiscal 2018. Apart from earnings growth, the transaction is likely to expand EBITDA margins, and deliver strong cash flow and return on invested capital.
Becton, Dickinson has also identified $250 million of pre-tax cost synergies, including savings from the merger, which are expected to be fully realized in fiscal 2018. To complete the deal, Becton, Dickinson received a $9.1 billion bridge loan from The Goldman Sachs Group, Inc. (GS) and plans to obtain a permanent loan at the deal’s closing.
Financial Guidance
Becton, Dickinson reaffirmed its previously announced guidance for fiscal 2014. Adjusted earnings per share are still expected in the range of $6.22 to $6.25, which represents year-over-year growth of 7.0–7.5%. The current Zacks Consensus Estimate of $6.25 coincides with the higher end of the guided range.
Becton, Dickinson continues to expect revenue growth in the range of 4.0 to 5.0% for fiscal 2014. In constant currency, revenue growth is expected between 4.5 and 5.0%.
CareFusion also reaffirmed its fiscal 2015 financial guidance at 5–7% revenue growth and adjusted earnings per share of $2.60 to $2.75. The current Zacks Consensus Estimate of $2.68 lies within the guided range.
Potential Integration
While Becton, Dickinson manufactures products needed to deliver and administer drugs, like disposable needles, syringes and IV (intravenous) catheters, CareFusion makes products to store and deliver drugs, such as infusion pumps.
Per the agreement, the companies will combine their complementary product portfolios to offer integrated medication management solutions and smart devices, ranging from drug preparation in the pharmacy, to dispensing on the hospital floor, administration to the patient, and subsequent monitoring.
CareFusion will operate as part of Becton, Dickinson’s Medical segment. By way of a designated integration team, comprising senior member from both organizations, the companies hope to ensure a seamless integration and achieve the identified cost synergies from the merger.
Currently, Becton, Dickinson carries a Zacks Rank #4 (Sell). The Cooper Companies Inc. (COO) is a better-ranked stock in the medical/dental supply industry with a Zacks Rank #1 (Strong Buy).
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