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Baxter International Inc.'s acquisition of Hill-Rom Holdings Inc. should boost the healthcare equipment company's digital strategy as it gains a portfolio of connected-care devices, according to executives.
"Patients and healthcare providers will have access to a vastly more robust portfolio with associated impact economies and simplicity. Our united team will also be positioned to accelerate the benefits of our digital transformation and the far-reaching potential of connected care to deliver rich insights and enhanced functionality, leading to improved outcomes," Baxter CEO José Almeida said during a Sept. 2 call following the deal announcement.
The $10.5 billion purchase, which is expected to close in early 2022, is nearly 10 times the total disclosed value of Baxter's acquisitions over the last five years. Under the terms of the deal, Deerfield, Ill.-based Baxter will pay $156 in cash for each outstanding share of Hill-Rom common stock, a 26% premium on the company's closing stock price on July 27 — prior to media reports about a potential deal — and a 7.5% premium based on Hill-Rom's Sept. 1 closing price.
Baxter will fund the purchase with cash and debt financing. As of the end of the second quarter, the company reported $3.14 billion in cash and cash equivalents on hand. Baxter expects the combined company to deliver cost synergies of about $250 million by the third year after the merger, according to a statement.
Hill-Rom brings with it a portfolio of connected hospital and home-care devices such as smart beds, which use sensors to help monitor patients in their hospital beds, connected monitoring tools and smart diagnostics. CEO John Groetelaars told investors during the deal call that Hill-Rom expects to realize revenue growth of more than 20% in 2021 from its connected-care portfolio.
Almeida also spoke to investors about the company's digital transformation efforts during the Sept. 2 call, noting that the company is focused on three "pillars" of transformation: digital health, a digital customer experience and a digital core.
Those initiatives have become a major focus for Baxter during the COVID-19 pandemic, Almeida said. As the health crisis highlighted the need for connected features like telehealth and remote patient monitoring, Reuters reported in December 2020 that Baxter wanted to acquire health tech company Omnicell Inc. for $5 billion, though the rumored deal has yet to materialize.
During its 2021 annual meeting, Baxter executives told shareholders and analysts that digital transformation in digital health would be a priority for the year. In August, the company announced it was extending a multiyear strategic agreement with Amazon.com Inc.'s cloud services unit Amazon Web Services Inc., to help drive its digital transformation.
Following the Sept. 2 deal announcement, S&P Global Ratings placed Baxter on a CreditWatch with negative implications. Moody's has placed Baxter's Baa1 senior unsecured rating on review for downgrade with the review focusing on Baxter's financing plans, integration strategies and benefits to the company.
"Moody's expects that Hill-Rom's strength in 'connected care' will strengthen Baxter's product suite, while Baxter will be able to leverage its substantially larger salesforce and network to expand distribution of Hill-Rom's products outside the United States," Moody's Senior Vice President Scott Tuhy said in a Sept. 2 release.
The proposed deal would be the largest healthcare equipment or supplies deal so far in 2021. In August, fellow healthcare equipment company Medtronic PLC announced a $1.01 billion acquisition of device-maker Intersect ENT Inc. European pharma giant Roche Holding AG acquired diagnostics-maker GenMark Diagnostics Inc. for $1.82 billion in March. Healthcare mergers and acquisitions are picking up in 2021 after early 2020 slumps, particularly in pharma.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.