Dive Brief:
- Becton Dickinson & Co. has announced its intention to purchase CareFusion Corp. for $58 a share, or $12.2 billion in cash and stock. The combination of the two companies will represent a continuum in the supply chain with Becton making products to deliver and administer medications and CareFusion making products to store and deliver the drugs.
- The purchase is expected to provide double-digit cash earnings per share of 15%. There could be a 40% cash earnings when the deal is fully realized. The boards of both companies have recommended the purchase, which would expand the companies' geographic reach: Becton currently receives 60% of its sales outside of the United States, whereas CareFusion gets 75% of its revenue from domestic sales.
- Becton is based in Franklin Lakes, NJ and CareFusion in San Diego. When the deal is finalized, Becton shareholders will own about 92% of the new organization and CareFusion shareholders 8%. The deal is subject to approval from regulators and CareFusion shareholders and is expected to be finalized in the first half of 2015.
Dive Insight:
In September, Reuters reported that merger activity in 2014 had reached $346 billion (as opposed to $212 billion during the same period in 2013). As hospitals work to reduce costs, many are looking to areas like supply chain to do so. Device manufacturers and distributors are finding that they may be able increase their size and leverage to better negotiate with hospitals.
Other major deals of this kind are Medtronic Inc.'s acquisition of Covidien Plc for $43 billion and AbbVie Inc.'s $54-billion purchase of Shire Plc. Some of these deals, like Medtronic and Covidien, are reliant upon an increasingly well-known but controversial deal called "tax inversion." Covidien, for instance, is headquartered in Ireland, which would allow Medtronic to avoid paying taxes in the United States. Congress has been looking at this trend across various industries and has been considering closing the tax loophole that allows companies to avoid paying taxes when they operate mainly in the United States, but are headquartered elsewhere. If the legislation changes, Medtronic will be allowed to pull out of the deal.