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Friday, September 29, 2023

Baxter to Snap Up Hill-Rom for $10.5B; Shares Rise Pre-Market

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Global medical products firm Baxter International (BAX) has signed an agreement to acquire global medical technology company Hill-Rom (HRC) for $156 per share in cash for a total equity value of around $10.5 billion. Baxter will also acquire Hill-Rom’s debt, taking the total enterprise value to nearly $12.4 billion.

In early trade on Thursday, Baxter’s shares were up 1.6% and Hill-Rom’s nearly 4%, at the time of writing.

Illinois-based Baxter offers surgical, hospital, renal, nutrition and critical care products for the treatment of immune disorders, kidney disease, hemophilia, and other acute and chronic medical conditions. (See Baxter stock chart on TipRanks)

Hill-Rom provides connected care and digital solutions and collaboration tools, including respiratory health devices, patient monitoring and diagnostic technologies, smart bed systems and advanced equipment for the surgical space, among others.

Baxter expects the acquisition to generate pre-tax cost synergies of around $250 million annually by the end of the third year. It is also likely to be accretive to Baxter’s adjusted earnings per share (EPS) in the low double-digit range in the first full year after the completion of the acquisition.

The deal is also expected to boost Baxter’s adjusted EBITDA margins over the medium-term as well as deliver return on invested capital (ROIC) in high single-digit by the fifth year. (See Hill-Rom stock chart on TipRanks)

Furthermore, the transaction is likely to boost Baxter and Hill-Rom’s expansion into connected care and digital solutions; broaden their presence across sites of care; strengthen and accelerate their digital transformation; and generate financial returns for Baxter’s shareholders.

The President and CEO of Hill-Rom, John Groetelaars, said, “Patients and caregivers will benefit from enhanced capabilities across the continuum of care, our shareholders will receive a significant and immediate premium for their investment, and our employees will benefit from being part of a larger, stronger company with accelerated growth opportunities. Baxter is the ideal partner to enhance our global reach and realize the true potential of our vision to accelerate medical innovation around the world.”

As a result of the proposed acquisition, Baxter has postponed its 2021 Investor Conference, which was scheduled to take place on September 20, to a date following the completion of the transaction. Meanwhile, it has issued long-term financial guidance, which excludes any impact from the proposed acquisition of Hill-Rom.

Baxter expects sales to expand at a compounded annual growth rate of 4 to 5% between 2021 and 2024. It further expects adjusted operating margin to rise by at least 300 basis points and adjusted EPS to grow in low double digits over the same period.

On July 29, Stifel Nicolaus analyst Rick Wise maintained a Buy rating on Baxter but reduced the price target to $90 from $95 (16.4% upside potential).

The analyst said, “The company’s Q2 results seemed mixed overall, if not slightly disappointing. If second-half recovery progresses and the analyst day re-establishes a more clear-cut path to better growth and margins, the post-report stock weakness may prove to be a more attractive entry point.”

Overall, the stock has a Moderate Buy consensus rating based on 3 Buys and 3 Holds. The average Baxter price target of $89.17 implies 15.3% upside potential. Shares of the company have lost 9.7% over the past year.

On August 2, Robert W. Baird analyst Michael Polark reiterated a Buy rating on Hill-Rom and increased the price target to $150 from $125 (3.4% upside potential). The analyst said, “Q3 results were clean, helping estimates continue their recent upward trajectory.”

Overall, the stock has a Moderate Buy consensus rating based on 4 Buys and 2 Holds. The average Hill-Rom price target of $145.60 implies that shares are fully valued at current levels. The stock has gained 52.8% over the past year.

According to TipRanks’ Smart Score rating system, Hill-Rom scores a 9 out of 10, suggesting that the stock is likely to outperform market averages.

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The post Baxter to Snap Up Hill-Rom for $10.5B; Shares Rise Pre-Market appeared first on TipRanks Financial Blog.

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