I have been saying for a long time that the medical technology sector is home to some of the most lucrative merger opportunities. Today, I want to tell you about one of the latest U.S. med-tech megadeals. Last Thursday, Deerfield, Illinois-based Baxter International Inc. (NYSE:BAX) and Chicago, Illinois-based Hill-Rom Holdings, Inc. (NYSE:HRC) announced that they had reached an agreement on a takeover deal.
The announcement ends a back-and-forth negotiation process that has been going on for several months. Back in July, Baxter offered $9.5 billion for Hill-Rom, or $144 for each Hill-Rom share, but Hill-Rom turned them down.
Baxter has now convinced its acquisition target with a revised offer of $156 per share in cash. With just under 66 million Hill-Rom shares outstanding, the purchase price thus amounts to almost $10.5 billion. Including debt, the total enterprise value of Hill-Rom is actually around $12.4 billion. Baxter will pay for the purchase with a combination of cash and fully committed debt.
Stock Prices Jump
Following the announcement of the takeover on Sept. 2, 2021, the share prices of both companies rose significantly. The price of Hill-Rom shares jumped 4.6% to $151.80.
Hill-Rom shares have already gained almost 40% in the last 3 months since takeover rumors first became public. Somewhat surprisingly, however, Hill-Rom is still trading at a significant discount to Baxter’s cash offer price.
Baxter shares also gained just over 4% on Thursday, heading into the close at $81.07. Shareholders are apparently confident in the firm’s decision to acquire its smaller competitor.
Baxter and Hill-Rom At A Glance
Baxter is active in both the pharmaceutical and medical technology sectors. It primarily focuses on products which treat chronic medical conditions like hemophilia, chronic kidney disease and immune disorders. With a global presence, the company’s approximately 50,000 employees generated $11.7 billion in sales and $1.1 billion in net income last year.
Hill-Rom is also a global leader in medical technology, although it focuses less on specific kinds of treatment equipment than Baxter and more on general hospital hardware. The company’s products include hospital beds, stretchers, patient monitors, operating tables and electrocardiographs. Last year, Hill-Rom’s 10,000 employees generated $2.9 billion in sales with net income of $223 million.
Baxter aims to expand its portfolio into new product lines like hospital beds with the acquisition. It also seeks to benefit from economies of scale by merging similar product lines, like monitoring equipment, with Hill-Rom. Baxter Chairman and CEO José Almeida also emphasized the synergies between the companies in his statement on the acquisition:
“Baxter and Hill-Rom are joining forces to address the challenges of a rapidly evolving global healthcare landscape while creating significant value for all the stakeholders we serve.”
The Consolidation Of The Global Medical Technology Industry
Baxter’s acquisition of Hill-Rom is another step in the global consolidation of the med-tech sector. Back in 2014, for example, Ireland-based Medtronic paid a whopping $43 billion for competitor Covidien.
In early 2017, Abbott Laboratories acquired St. Jude Medical, paying $25 billion for the pacemaker specialist. And last year, Siemens Healthineers announced the acquisition of U.S. cancer specialist Varian for about $16.5 billion.
The boards of directors of both companies have already unanimously approved the takeover. For the deal to go ahead, Hill-Rom shareholders must also vote in favor. Regulators must also still approve the takeover. The transaction is expected to be completed by early 2022.