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Is Becton, Dickinson Mulling the Sale of its Respiratory Unit? - Analyst Blog

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Becton, Dickinson and Company BDX, commonly known as BD, is contemplating the sale of its respiratory devices unit. As per reports by Bloomberg, the segment that provides ventilators, breathing tubes and oxygen masks is currently valued at approximately $1.5 billion to $2 billion.

Reportedly, BD is reviewing its overall business to identify non-core assets, post the Carefusion merger, which was completed on Mar 17, 2015. The rumored respiratory business divestiture forms part of that plan, which if successful, will not only free up valuable resources but also improve the debt-laden balance sheet of the company.

BD purchased Carefusion for almost $12.4 billion in a cash-and-stock deal. The buyout is expected to prove accretive to the company’s cash EPS in the very first year. BD expects the merger to more than double its addressable opportunity by building scale and depth in medication management and patient safety solutions.

However, the merger deal significantly increased BD’s leverage. The company financed the transaction through debt of nearly $7.7 billion, which includes $6.2 billion in bonds, $1 billion in term loan facility and $500 million in commercial paper, with an average interest rate of 2.6%.  

Following the completion of the merger, credit rating provider Moody’s MCO downgraded BD’s senior unsecured ratings to Baa2 from A3. The credit rating agency is apprehensive about BD’s weakened liquidity as well as increased exposure to U.S. hospital capital equipment sales environment, which remains sluggish.

However, Moody’s affirmed a stable rating outlook based on BD’s de-leveraging plan and smooth Carefusion integration. The credit rating agency also believes that the company’s will refrain from buying back shares in the near term. These will help BD to lower its debt/EBITDA ratio, which was over 4 times at the time of merger

BD expects to reduce its debt/EBITDA to 3.0 times within the next 24 months and below 2.5 times over the long haul. Moody’s believes that repatriation of overseas cash in a tax-efficient manner will help the company achieve the debt/EBITDA target. In such a scenario, divestiture of non-core assets will certainly help in improving BD’s balance sheet.

We believe that the Carefusion merger opens up significant opportunities for BD. The combined manufacturing footprint and operations and lower overhead expenses will result in significant cost savings. In our view, the merger also has the potential to enhance the combined entity’s geographical reach and focus extensively on emerging markets for growth.

Currently, BD has a Zacks Rank #2 (Buy). Other favorably-ranked stocks in the same space include Merit Medical MMSI and Inogen INGN. Both the stocks sport a Zacks Rank #1 (Strong Buy).

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