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Danaher's Senior Notes Offerings to Fund BioPharma Buyout

Zacks Equity Research

Danaher Corporation DHR yesterday announced about the pricing of €6.25 billion worth of senior notes, which will be guaranteed (fully and unconditionally) by it. It is worth noting here that DH Europe Finance II S.à r.l. — a wholly-owned subsidiary of Danaher — is the issuer of these senior notes. The offering will close on Sep 18, 2019.

The net proceeds of the offerings will be used to fund the acquisition of the BioPharma business — part of General Electric Company’s GE GE Life Sciences business.

Inside the Headlines

As noted, the offerings will comprise €1.25 billion of 0.200% senior notes due to expire in 2026, €1.25 billion of 0.450% senior notes due to expire in 2028, €1.75 billion of 0.750% senior notes due to expire in 2031, €1.25 billion of 1.350% senior notes due to expire in 2039 and €0.75 billion of 1.800% senior notes due to expire in 2049.

About the pricing, notes due to expire in 2026 have been priced at 99.833% of principal amount, whereas, 2028 notes are priced at 99.751%, 2031 notes at 99.920%, 2039 notes at 99.461% and 2049 notes at 99.564%.
 
Interest on the senior notes will be paid annually. Payment will start from Mar 18, 2020, for 2026 notes and 2028 notes while will begin on Sep 18, 2020, for 2031 notes, 2039 notes and 2049 notes.

Ratings of the issuance are expected to be ‘Baa1’ by Moody's Investors Service and ‘BBB+’ by Standard & Poor’s Ratings Services.

Danaher anticipates securing net proceeds of roughly €6.197 billion from these notes offerings. These proceeds are net of underwriting discounts and issuance-related costs.

We believe that offerings of senior notes will increase Danaher’s debts and in turn, might inflate its financial obligations and hurt profitability. It is worth mentioning here that the company's long-term debt at the end of the second quarter stood at $10.1 billion.

Snapshot of BioPharma Buyout

It is worth noting here that Danaher agreed to acquire the BioPharma business for $21.4 billion on Feb 25. The buyout is anticipated to be completed in the fourth quarter of 2019. The acquired assets will be integrated with Danaher’s Life Sciences segment, complementing the company’s biologics workflow solutions.

The buyout is anticipated to boost its non-GAAP adjusted earnings by 45-50 cents per share in the first year of the completion of the deal.

In March 2019, Danaher raised funds from the issuance of common shares and preferred stocks to fund the BioPharma buyout. It raised net proceeds of $1.44 billion from 12.1 million of common share offerings and $1.60 billion from the issuance of 1.65 million of 4.75% Series A mandatory convertible preferred stocks. We believe that expanded share base caused by these offerings will likely dilute the company’s earnings in the year.

Zacks Rank and Stocks to Consider

With a market capitalization of approximately $102 billion, Danaher currently carries a Zacks Rank #3 (Hold). In the past 60 days, the Zacks Consensus Estimate for earnings has risen 0.4% to $4.79 for 2019 and 0.7% to $5.49 for 2020.

Danaher Corporation Price and Consensus

 

Danaher Corporation Price and Consensus

Danaher Corporation price-consensus-chart | Danaher Corporation Quote

The company’s share price has increased 4.2% in the past three months compared with the industry’s decline of 2.9%.





Two better-ranked stocks in the industry are Carlisle Companies Incorporated CSL and United Technologies Corporation UTX, currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for 2019 have improved for Carlisle Companies and United Technologies. Further, earnings surprise in the last reported quarter was positive 11.02% for Carlisle Companies and 7.84% for United Technologies.

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