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Baxter (BAX) to Benefit From Hill-Rom Buyout: Here's How

Baxter International Inc. BAX recently inked a definitive agreement under which it will acquire Hill-Rom Holdings, Inc. HRC, subject to approval of the latter’s shareholders and the fulfilment of customary closing conditions (including regulatory approvals). Per the agreement terms, Baxter will acquire Hill-Rom for $156.00 per share in cash for a total equity value of approximately $10.5 billion and a total enterprise value of approximately $12.4 billion, including the assumption of debt.

For investors’ note, the buyout, which was unanimously approved by the management of both companies, is expected to close by early 2022.

The latest takeover is expected to significantly solidify Baxter’s foothold in the global digital and connected care solutions space.

Rationale Behind the Acquisition

Baxter expects to benefit from the addition of Hill-Rom’s complementary product portfolio and innovation pipeline following the buyout. The transaction is likely to enable Baxter to provide a broader range of medical products and services to patients and clinicians across the care continuum on a global scale. Baxter aims to provide patient- and customer-centered healthcare and also wants to focus on improving clinical outcomes via the latest development.

The deal is expected to fast-track the company's expansion into digital and connected care solutions that are increasingly enabling patients with access to hospital-level care at home or in other care settings.

Per Baxter’s management, the buyout is expected to meet the challenges of a rapidly evolving global healthcare landscape as well as create significant value for all the company’s stakeholders. The acquisition is likely to enable the company to serve patients who are increasingly eager to receive their care at home, and help hospitals and other care providers that are increasingly using digital health technologies to expand access, improve quality and lower costs.

Financial Implications

The transaction is expected to be low double-digit accretive to Baxter's adjusted earnings per share in the first full year post completion, increasing to more than 20% by year three.

Baxter estimates the transaction to result in approximately $250 million of annual pre-tax cost synergies by the end of the third year. However, this projection excludes any benefit from potential new revenue growth opportunities resulting from the combination of the two organizations.

Industry Prospects

Per a report by BrandEssence published on PR Newswire, the global connected healthcare market was valued at $55.2 million in 2020 and is expected to reach $420.8 million by 2027 at a CAGR of 28.9%. Factors like growing need for remote patient-monitoring services and rapid technological improvements are likely to drive the market for connected healthcare.

Given the market potential, the buyout is likely to significantly boost Baxter's global business.

Notable Deals

Of late, Baxter has inked a few notable deals across its business.

The company, in August, extended its multi-year strategic agreement with Amazon Web Services to enable cloud technology solutions to accelerate its digital transformation forward.

In July, Baxter announced that its Baxter Healthcare Corporation subsidiary has completed the acquisition of certain assets related to PerClot Polysaccharide Hemostatic System from CryoLife. The transaction reinforces Baxter’s strategy of acquiring products and technologies that both complement and augment its portfolio across the hospital, including in the operating room.

Price Performance

Shares of Baxter have gained 0.5% in the past year compared with the industry’s 15.1% growth and the S&P 500's 33.9% rise.

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Zacks Rank & Key Picks

Currently, Baxter carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks from the broader medical space are Henry Schein, Inc. HSIC and IDEXX Laboratories, Inc. IDXX.

Henry Schein’s long-term earnings growth rate is estimated at 13.9%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX’s long-term earnings growth rate is estimated at 19.9%. It currently has a Zacks Rank #2.

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Baxter International Inc. (BAX): Free Stock Analysis Report
Henry Schein, Inc. (HSIC): Free Stock Analysis Report
IDEXX Laboratories, Inc. (IDXX): Free Stock Analysis Report
HillRom Holdings, Inc. (HRC): Free Stock Analysis Report
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