The Ministry of Commerce of the People's Republic of China has approved Becton, Dickinson and Company’s (BDX - Free Report) acquisition of C. R. Bard . The company is set to complete the $24-billion cash-and-stock deal.
Favorable tidings on the regulatory front have accelerated the deal’s progress. Recently, the Federal Trade Commission gave its approval for the acquisition. However, the acquisition is a subject to the satisfaction of customary closing conditions.
Formation of BD Interventional: A New Segment
After the completion of the deal, Becton, Dickinson will establish a third business segment — BD Interventional. Notably, Bard will be integrated in this vertical. Becton, Dickinson is already a leading player in interventional specialties solutions. The company promotes positive clinical outcomes using minimally invasive and percutaneous techniques for obtaining samples of liver, breast, lung and kidney biopsy. Further, the company provides facilities for peritoneal drainage at home.
In April 2017, Becton, Dickinson signed the agreement. Per management, the company is on track to become one of the biggest medical technology devices company in the world with this buyout.
Becton, Dickinson operates in two segments currently — The BD Medical segment and The BD Life Sciences segment. Post deal closure, the company projects growth in adjusted earnings starting fiscal 2019. The strategic acquisition is expected to generate benefits from complementary businesses and geographical expansion.
Becton, Dickinson and Company Price
Moody's Not Happy
Moody's Investors Service, the rating services arm of Moody's Corporation (MCO - Free Report) , downgraded Becton, Dickinson's senior unsecured notes to Ba1 (LGD 4) from Baa2 and its commercial paper rating to ‘Not Prime’ from Prime-2. The lackluster rating reflects Becton, Dickinson's aggressive acquisition strategy. In this regard, the company’s latest deal to acquire Bard has been signed just two years after the $12.5-billion CareFusion buyout.
Per Moody’s, the acquisition is likely to almost double Becton, Dickinson's debt load (including assumed debt issued by Bard). Further, the company’s pro-forma leverage (debt/EBITDA) will increase almost five times after the closure of the deal, indicating looming concerns for the stock.
Although, Becton, Dickinson expects to reduce debt/EBITDA ratio below three times within three years of closing, Moody’s believes this is unlikely to happen.
On a positive note, Moody's believes that the company's cost-saving targets are achievable. In this regard, Becton, Dickinson expects $300 million of cost savings by fiscal 2020. Moody's also expects Becton, Dickinson to make use of free cash flow for debt reduction.
What’s in the Cards Post Deal Closure?
Becton, Dickinson announced that it will divest soft tissue core needle biopsy products and Bard's Aspira product line of tunneled home drainage catheters and accessories for $100 million to Merit Medical Systems, Inc. (MMSI - Free Report) , contingent to the completion of the buyout.
Coming to the strategic advantages, Becton, Dickinson will generate high-single digit growth in adjusted earnings per share by fiscal 2019. The company will be able to expand to new areas where Bard currently operates — fast-growing vascular access segments, peripherally inserted central catheters (PICCs), midlines and drug delivery ports.
Moreover, the acquisition is expected to strengthen the combined entity’s footprint in the home healthcare market in the United States. A research report by ‘Markets and Markets’ reveals that the home healthcare market is expected to reach a total of $349.8 billion by 2020 at a CAGR of 9%.
Price Performance & Zacks Rank
Over the last six months, Becton, Dickinson has outperformed the industry in terms of price performance. The company's shares have returned 11.7%, comparing favorably with the industry’s rally of 1.5%.
The stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>