Danaher, Beckman Coulter to Merge in Year’s First Blockbuster Deal

By now, most medical device professionals have heard the rumors about Beckman Coulter Inc. (the rumblings, in fact, have grown so old they’re nearly stale): The Brea, Calif.-based device and diagnostics manufacturer has been hocking its wares in an effort to regain long-term financial growth. Various companies were believed to be courting the struggling firm, from Johnson & Johnson, General Electric and 3M to Danaher Corporation and Royal Philips Electronics NV. Even investment companies like Blackstone Group LLP, Kohlberg Kravis Roberts & Co., Apollo Global Management LLC and Carlyle Group were rumored to be among Beckman’s possible beaus.

Only one suitor made the final cut, however. And on Monday, executives at Beckman Coulter revealed their choice by announcing a $5.87 billion merger with Danaher Corporation, a Washington, D.C.-based company that designs and manufactures products for the medical, industrial and commercial sectors. Analysts were not too surprised by Beckman Coulter’s choice of a financial savior—Danaher has long relied on acquisitions to bolster its slow-growing revenue base. The firm typically searches for underperforming companies and has developed a reputation for wringing out fast margin-expansion results after deals.

Under terms of the merger, Danaher will pay $83.50 for each Beckman share, an amount the companies claim represents a premium of about 45 percent over the trading price of Beckman’s stock on Dec. 9, when takeover rumors first surfaced. Danaher is financing the acquisition with cash (25 percent), new and assumed debt (60 percent), and equity (15 percent). Executives expect the deal to add five cents to 10 cents to adjusted per-share earnings this year, excluding acquisition-related one-time charges. The company forecasts per-share earnings of 25 cents to 30 cents next year on a generally accepted accounting principles basis.

Over the longer term, Danaher executives believe the deal will result in more than $250 million in cost synergies and a 10 percent return on invested capital in less than four years. The merger, structured as a tender offer and subject to approval by a majority of Beckman Coulter shareholders, is expected to be completed in the first half of this year. The companies valued the acquisition at about $6.8 billion, including debt assumption and net of cash acquired.

“Beckman Coulter is an iconic company with a great brand, broad reach and technology leadership; well positioned in the markets it serves,” Danaher CEO H. Lawrence Culp Jr. said in a prepared statement. “Beckman provides an excellent complement to our existing Life Sciences & Diagnostics businesses. Being part of Danaher, Beckman associates will have the opportunity to leverage the power of the Danaher Business System, including the processes by which Danaher accelerates growth through new product innovation and driving sales, marketing and service, as well as its strength in continuously expanding margins.”

Beckman Coulter President and CEO Bob Hurley said the deal maximizes shareholder value and strengthens its position in the biomedical testing market.

“Following a very comprehensive and competitive process, the Board of Directors voted unanimously to accept Danaher’s proposal. We believe this transaction maximizes Beckman Coulter shareholder value while strengthening the company’s position as a leader in biomedical testing to the benefit of our customers and their healthcare patients around the world,” he said. “We will have significant opportunities to leverage our relationships across our large installed base of automated systems in hospital laboratories with that of Danaher.”

Once the deal is finalized, Beckman Coulter will become part of Danaher’s Life Sciences & Diagnostics segment, joining Danaher’s Leica, AB Sciex, Radiometer and Molecular Devices businesses.

With the merger announcement, Beckman Coulter hopes to leave behind a dreadful 2010 and start fresh this year. The company was forced to cope with a product recall last March, multiple financial-guidance cuts and the unexpected resignation of its CEO last fall. The company gave no reason for the resignation.

The recall threw Beckman Coulter into turmoil last spring, forcing the company to set up a clinical trial to support two device approval applications with the U.S. Food and Drug Administration (FDA). The agency accused the firm of marketing a diagnostic test without the necessary clearance; the test measures a protein that detects heart problems.

Though the test comprises a small part of Beckman Coulter’s sales—totaling $60 million of the firm’s $3.3 billion in 2010 sales—its absence from the market nevertheless represents a serious problem for the company. With the test out of commission, analysts claim Beckman Coulter is handicapped in selling its testing instruments, providing rivals Abbott Laboratories, Roche Holding Ltd., and Siemens AG the opportunity to gain market share.

“Our view is that with several large and well-funded core lab equipment competitors poised to take advantage of (Beckman’s) missteps, winning new business with a key assay omitted will be a high hurdle,” said John Sullivan, an analyst with Leerink Swann LLC.