Danaher has said it expects to realise cost synergies of around a quarter billion dollars from its proposed acquisition of IVD specialist Beckman Coulter.

The diversified science and technology group yesterday announced it had inked a definitive agreement to buy Brea, California-based Beckman in a deal worth approximately $6.8m, including debt and cash acquired (www.clinica.co.uk , 7 February 2011).

The transaction, which is expected to close in the first half of the year, will see Beckman merge into Danaher's Life Sciences and Diagnostics segment, which includes its Radiometer, Leica, AB Sciex, and Molecular Devices businesses.

In a conference call, Danaher president and CEO Larry Culp told investors that cost is "a very important part of the equation; there is a lot of discipline Danaher can bring to Beckman" in order to realise the $250m cost synergies from the merger. Half of this will come from "more traditional operational synergies", namely within sourcing, procurement and productivity efforts "on the shop floor or supply chain", said Mr Culp. A quarter of the synergies will come from streamlining of general administrative functions and the remaining quarter from various areas identified during due diligence, such as IT, where the merged business can provide high quality of service but at a lower spend, he continued.

Opportunities

Cost savings aside, the addition of Beckman will more than double Danaher's presence in the life sciences and medical diagnostics market.

With annual revenue of $3.7bn (in line with the full-year 2010 revenue guidance it gave in the second half of last year), Beckman is number four in the global IVD market. 70% of this revenue comes from consumables and services, while 30% comes from sales of its analyser system. Beckman's clinical chemistry business – which was considerably bulked up after the acquisition of Olympus's lab-based diagnostics business in 2009 – accounts for 33% of an portfolio, followed by cellular systems (30%), immunoassays (25%) and life sciences business (12%).

Danaher, said Mr Culp, is looking to unlock the value at Beckman by leveraging "the power of Danaher's processes and enhanced sales and marketing services". "There is a whole host of opportunities for us to accelerate spending in high impact areas," he told investors. Expanding Beckman's immunoassay menu is one of them, as is growing its life sciences business by tapping into Danaher's existing expertise and operations in this area.

One particular area in which Danaher expects to see significant opportunity is in the emerging markets. 25% of Beckman's total revenue in 2010 came from sales outside North America and the EU; in China, Beckman is the number two IVD player and its revenue there is growing in excess of 25% annually. Combining Beckman's presence in China and other international markets with Danaher's existing footprint in these regions will provide the combined business with more exposure and opportunity to capitalise on the fast-growing market, which is one of Danaher's key strategies moving forward.

Good response

In terms of how the deal will impact Danaher's figures, the group expects a 10% return on invested capital by 2014. It also expects Beckman to contribute $650m to Danaher's free cashflow within the same time frame. The acquisition will be funded by a mix of available cash (25%), new and assumed debt (60%) and equity (15%). Danaher expects the transaction to be accretive to its 2011 earnings by $0.05-0.10 per share (excluding acquisition-related charges), and to its 2012 earnings by $0.25-0.30.

The deal has been met with an overall positive response from the market, with the analyst consensus view being that Danaher's offer of $83.50 per share is an attractive one for Beckman's shareholders.

2010 had not been the most memorable for Beckman, tainted by various events including recalls linked to a blood analyser system and its troponin test and lacklustre half-year results, all of which culminated in the sudden resignation of its CEO Scott Garret in September (www.clinica.co.uk, 9 September 2010). During this time, Beckman's share price wallowed below the $50-mark, but started to recover a little following improved third-quarter results.

In December, speculation that Beckman had hired Goldman Sachs to advise on whether it should go private or seek a strategic buyer continued to buoy shares in the IVD company (www.clinica.co.uk, 20 December 2010). Danaher was among the names that were bandied about as potential suitors of the Brea, California-headquartered biomedical test and lab systems manufacturer.

Danaher's offer price represents a premium of approximately 45% to Beckman's closing price on 9 December 2010, the date on which the rumours of potential takeover bid for the company began.