Baxter International Inc said on Tuesday that it would buy privately held Swedish dialysis product company Gambro AB for about $4 billion to complement its kidney therapy portfolio.
Baxter will finance the deal, which it valued at $26.5 billion Swedish kroner, with debt and cash.
Baxter manufactures kidney dialysis equipment, drug infusion pumps and blood therapy products. The Gambro acquisition will round out Baxter's renal business, which accounted for almost one-fifth of the company's 2011 revenue of $13.89 billion.
Gambro is one of the largest makers of equipment for hemodialysis, which is generally performed in a hospital or clinic. The dialysis from Baxter's machines is called peritoneal and can be performed at home.
The deal marks further consolidation in the kidney dialysis market, where Gambro and Baxter compete against rivals such as U.S.-based DaVita HealthCare Partners Inc and Germany's Fresenius Medical Care AG & Co KGaA.
Analyst Kristofer Liljeberg of Sweden's Carnegie investment bank said the Gambro deal would give Baxter the No. 2 clinical dialysis position, behind Fresenius.
"I think in the longer term, the ambition is to try to challenge Fresenius," Liljeberg said.
However, he said, Gambro, which is owned by Swedish investment holding company Investor AB and its partly owned private equity company EQT Corp, had been struggling in recent years with slow growth and price competition.
Liljeberg said the deal was a good one for family-owned Investor, which controls several of Sweden's top companies. Since they bought Gambro, Investor and EQT have sold off its clinics and a blood component business.
A GROWING MARKET
More than 2 million patients globally are on some form of dialysis, and that has been increasing more than 5 percent annually, in part because of the rising rates of diabetes and hypertension.
Excluding special items, Baxter expects the Gambro transaction to reduce earnings per diluted share by 10 cents to 15 cents in 2013 and be neutral or add modestly to them in 2014. The deal is expected to close in the first half of next year.
Excluding the impact of special items and estimated amortization of intangible assets, the company said the deal should not affect earnings in 2013 and add 20 cents to 25 cents a diluted share to them in 2014.
Baxter said it expected the deal to add to earnings per diluted share, excluding special items, after 2014.
The suburban Chicago company said it expected over five years to increase its sales by 7 percent to 8 percent, excluding the impact of currency fluctuations, on a compound annual basis, with earnings per diluted share, excluding special items, rising by 8 percent to 10 percent.
"Companies like Baxter can unlock a fair amount of value when they find strategic use for their overseas cash," said Piper Jaffray analyst Matt Miksic.
Indeed, Baxter said it planned to finance the deal with cash overseas. Multinational companies that have large international sales often have difficulties moving that cash back to the United States where they can put it to use.
(Reporting by Esha Dey in Bangalore and Debra Sherman in Chicago, Caroline Humer in New York, and Patrick Lannin in Stockholm; Editing by Joyjeet Das and Lisa Von Ahn)