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Kirkland Guides Baxter's $4B Buy of Dialysis Co. Gambro

04 December 2012

Health care company Baxter International Inc. will pick up Swedish dialysis product maker Gambro AB for about $4 billion to flesh out its existing kidney care portfolio as the global market for related treatments grows, Baxter said Tuesday.

Illinois-based Baxter did not give a financing breakdown, but said it would cover the purchase price with a mix of on-hand cash generated through overseas operations and new debt. Subject to regulatory approval, Baxter expects to officially acquire privately held Gambro in the first half of next year.

In the deal, Baxter will gain one of the world's biggest suppliers of in-hospital dialysis and kidney-care products to round out its products. Gambro posted $1.6 billion in sales for last year, driven by dialysis and related treatment devices, mainly for the chronically ill. The bulk of Baxter's existing dialysis business — which fed about one-fifth of its $13.9 billion in sales for last year — deals with in-home treatments and products.

Baxter Chairman and CEO Robert Parkinson Jr. said that folding Gambro into his business would give a major boost its renal disease portfolio, which sits alongside a broad range of other units that develop and market products tied to immune disorders, infectious diseases and other medical conditions.

"Baxter has a legacy of innovation in dialysis,” he said. “This transaction will provide attractive returns and enhance Baxter's sales and earnings growth over the company's current long-range financial plan.”

The transaction could begin delivering value to shareholders as soon as 2014, according to Baxter, and will cut operational costs by roughly $300 million by 2017. Gambro's products will lift annual sales by as much as 8 percent over five years, the Illinois company said, and grow earnings between 8 and 10 percent.

The buyer is betting on a burgeoning market for dialysis, on the rise around the world with more than 2 million patients currently receiving treatment. Gambro's 7,500 employees are spread across 13 production facilities in nine countries. The Swedish firm serves customers in more than 100 countries.

According to one estimate, treatment rates average an increase of more than 5 percent year-over-year thanks to increasingly prevalent diabetes and hypertension. Health care providers have scrambled to address the need, upping demand for dialysis treatment options and products.

And Baxter isn't the only multibillion-dollar health care company trying to cash in on the trend.

In May, dialysis clinic operator DaVita Inc. inked a $4.4 million cash-and-stock deal to swallow up managed care group HealthCare Partners LLC, a move that added thousands of money-making Medicare patients to its rolls and broadened its reach in key markets. Since 2007, DaVita has expanded its network of dialysis centers from 1,300 to more than 1,600, with a strong presence in California and Florida.

Baxter's share price fell just more than 1 percent in Tuesday trading, hanging at about $65.10 midday.

Baxter is represented by Kirkland & Ellis LLP, with JPMorgan Chase & Co. acting as financial adviser.

A Lathan & Watkins LLP team including Charles Ruck, Adel Aslani-Far and Scott Akamine is representing Baxter financial adviser JPMorgan.

Other counsel information was not immediately available.

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