FILE PHOTO: Sign with logo at regional headquarters of medical technology company Becton Dickinson (BD) in Silicon Valley, Menlo Park, California, Nov. 14, 2017.
Smith Collection | Gado | Archive Photos | Getty Images
Lab equipment maker Waters Corp will buy a bioscience and diagnostics unit spun off from medtech provider Becton Dickinson in a stock-and-cash transaction valued at $17.5 billion, the companies said on Monday.
Becton Dickinson, which had been underperforming in recent months and was targeted by activists, will exit a tariff-sensitive segment of diagnostics and biosciences while doubling down on core medtech, where it may have greater pricing power and a stronger domestic manufacturing base.
BD had disclosed plans to separate the business — which makes products used to detect infectious diseases and cancers — in February, then rumored to be worth around $30 billion.
The acquisition gives greater scale for Waters, a provider of analytical technologies serving life sciences and diagnostics markets, and the company is expected to double its total addressable market to about $40 billion, with a healthy 5% to 7% annual growth rate.
The merged entity may be able to leverage BD’s existing U.S.-based manufacturing and regulatory infrastructure to mitigate tariff costs.
Still, investor reaction was cautious.
Waters shares were down 11.5% at $312.19 and Becton shares were down 0.7% at $174.68 on Monday afternoon, reflecting doubts over the complexity and execution risks associated with the deal’s structure, according to JP Morgan analysts.
The deal “leaves value creation dependent on the successful integration and execution by Waters management,” said JP Morgan analyst Robbie Marcus.
Jefferies analysts echoed the sentiment, noting that the deal added complexity to Waters’ once-clear growth strategy. The combined business will be led by Waters CEO Udit Batra, widely credited for orchestrating the $17 billion Merck KGaA acquisition of Sigma-Aldrich in 2015, an experience Jefferies analysts said lends credibility to the complex integration process ahead. Becton was underperforming both revenue growth and margins, said Jeff Jonas, portfolio manager at Gabelli Funds, which owns shares of both BD and Waters Corp. In May, BD lowered its annual profit forecast in anticipation of a potential hit from U.S. President Donald Trump’s tariffs.
“It (BD) can benefit from a more focused management,” Jonas said.
The deal announced on Monday is structured as a so-called Reverse Morris Trust, which allows a company to avoid a big tax bill by spinning off a unit that it wants to divest while simultaneously merging it with another company.
Waters shareholders are expected to own approximately 61% of the combined company. Waters will assume about $4 billion in incremental debt to pay BD $4 billion in cash distribution as part of the transaction. Becton shareholders will own about 39% of the new company, which will trade under Waters’ stock symbol.