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Baxter expands renal business with Gambro buy

Updated: January 6, 2013 9:46AM



Baxter International Inc.’s planned $4 billion acquisition of Sweden-based dialysis products maker Gambro AB, will significantly strengthen and diversify Baxter’s renal business product line, but it remains unclear how much it will boost its organic sales growth, analysts say.

Deerfield-based Baxter announced Tuesday it will acquire Gambro, the No. 3 provider of dialysis products and technologies used in hemodialysis, or dialysis that is performed in a hospital or clinic setting.

The acquisition marks Baxter’s biggest in two decades and is among a half a dozen it has made in the past 18 months. Gambro had 2011 revenues of roughly $1. 6 billion.

Baxter, the No. 2 dialysis products maker behind market leader Germany-based Fresenius Medical Care, has focused on peritoneal dialysis products, which are used in patients’ homes. Baxter’s renal business generates about $2.5 billion in sales annually, or roughy 20 percent of its revenues. The Gambro purchase will boost its renal business sales to about $4.2 billion or about 25 percent of its revenues, said Morningstar Inc. analyst Karen Andersen.

“I think it’s a smart move,” she said. “Really the vast majority of people in the world on dialysis are in a hospital or in a clinic for their dialysis, and Gambro really gives them the opportunity to instantly add that critical mass of dialysis offerings, since they focus more on the hospital and clinic options.”

Baxter noted more than two million patients globally are on some form of dialysis with dialysis treatment rates increasing more than 5 percent annually due in part to rising rates of diabetes and high blood pressure.

Health care providers are seeking comprehensive dialysis offerings, which vary by region, to serves patient based on clinical need, existing infrastructure and reimbursement policy, Baxter said, adding the deal will provide long-term growth opportunities for Baxter around the world.

The acquisition enables Baxter to accelerate product sales in established markets such as Europe, where Gambro has an extensive footprint, and Baxter can expand Gambro’s reach in high-growth regions of Latin America and the Asia-Pacific region, where Baxter has steadily grown its peritoneal dialysis business.

“This transaction will provide attractive returns and enhance Baxter’s sales and earnings growth over the company’s current long-rang financial plan,” Baxter Chairman and Chief Executive Officer Robert Parkinson said in a statement.

Baxter said it now expects over its five-year long-range financial plan to increase sales by 7 to 8 percent, up from 5 percent it forecast earlier, excluding the impact of foreign currency, and it expects to grow adjusted earnings per diluted share in the 8 to 10 percent range both on a compounded annual basis, up from an earlier forecast of 7 percent to 9 percent.

The planned purchase meets Baxter’s acquisition criteria, including improving the company’s revenue growth rates and increasing “their international exposure, specifically in emerging markets where many of these technologies have not historically been either available or broadly adopted,” said William Blair & Co. analyst Ben Andrew. “With its global footprint, Baxter can bring these products to a wider market, so there’s a real opportunity there.”

But the challenge with the acquisition is that Gambro has been a relatively flat revenue growth business for some time, Andrew said.

“I don’t think this is a lay up from an execution standpoint,” regarding revenue growth, Andrew said.

Morgan Stanley analyst David Lewis echoed a similar view in a research note.

“Baxter’s ability to drive growth acceleration in Gambro is the biggest unknown in this transaction,” Lewis stated.

Pending regulatory approval, the deal is expected to close in the first half of 2013.

Baxter said excluding special items, it expects the transaction to be dilutive to adjusted earnings per diluted share by $0.10 to $0.15 in 2013 and neutral to modestly accretive to adjusted earnings per diluted share in 2014. Excluding the impact of special items and estimated amortization of intangible assets, the company said it expects the transaction to be neutral to adjusted earnings per diluted share in 2013, and accretive in 2014 by $0.20 to $0.25 per diluted share.



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