By Bob Tita
Danaher Corp. intends to break itself in two separate companies
next year, becoming the latest industrial conglomerate to isolate
business units viewed as having strong growth potential from
cyclical, slower-growing business lines.
As part of the breakup, Danaher will acquire filtration
equipment make Pall Corp. for $13.6 billion to fortify a revamped
business portfolio focused on science, health care and technology
markets. Danaher plans to divest its industrial units by assembling
them in new public company that will be spun off to Danaher
shareholders in a tax-free transaction. The spinoff will complete a
shift under way at Danaher for the past few years to exit old-line
manufacturing businesses or businesses with little in common.
Other diversified industrial companies that have sold or spun
off major business lines to shareholders in recent years include
Tyco International PLC., ITT Corp., Illinois Tool Works Inc.,
Johnson Controls Inc. and Ingersoll-Rand PLC.
While other conglomerates were pressured into realignments by
activist investors or slumping profits, Danaher has been among the
best-performing conglomerates year after the year. With a
business-operating regimen focused on driving out costs and
expanding margins, Danaher has a reputation for effectively
steering through tough business conditions and quickly harvesting
the benefits from business acquisitions.
The new company carved out of Danaher will consist of its
testing and measurement equipment unit; the Gilbraco Veeder-Root
fuel pumps business; automation gear and sensors; and Matco tools
for mechanics. The businesses had combined revenue of about $6
billion in 2014. The company, which hasn't yet been named, will be
headed by veteran Danaher executive James Lico, who is now
executive vice president in charge of the testing and measurement
business and fuel pump line. Danaher expects to complete the
spinoff near the end of 2016.
Danaher's co-founders--Chairman Steven Rales and his brother
Mitchell Rales, a Danaher director--will serve on the board of the
new company. Meanwhile, Thomas Joyce will remain as CEO of Danaher,
which is based in Washington, D.C.
"Danaher will be a more focused science and technology growth
company, united by common business models and attractive
characteristics," Mr. Joyce said during a conference call Wednesday
with analysts. "Our large installed base of instruments is expected
to generate a stable and sustainable revenue stream."
Going forward Danaher's portfolio will consist of its life
sciences businesses; diagnostic tests, which includes Beckman
Coulter, a medical-diagnostic-equipment maker; product
identification gear; dental appliances; water treatment equipment;
and Pall.
The businesses had combined revenue of $16.5 billion last year.
More than two-thirds of the revenue came from replacement parts and
sales of consumable items, such as testing kits made by Beckman
Coulter. Mr. Joyce said Pall will be a good fit for the revamped
lineup.
The Port Washington, N.Y.-based company sells purification and
filtration equipment for water and other liquids to
biopharmaceutical companies, airplane manufacturers, brewers and
municipal water systems. About half of Pall's $2.8 billion of
revenue last year came from its life sciences business where about
60% of the sales were derived from the biopharmaceutical industry,
which produces drugs, vaccines and other treatments from biological
sources, rather than chemicals.
Pall's industrial business unit generated $1.3 billion of
revenue last year. Municipal water systems and other process
industries accounted for about two-thirds of industrial's
revenue.
Danaher will pay Pall shareholders $127.20 in cash for each of
their shares, about a 28% premium over the closing price of Pall's
stock on Monday. The purchase of Pall is Danaher's largest
acquisition to date, surpassing the purchase of Beckman Coulter in
2011 for $5.9 billion.
As Danaher devoted more resources to large-size acquisitions of
science and technology companies, Mr. Joyce said the industrial
units have become increasingly deprived of investment. By launching
these businesses into a separate company, Mr. Joyce predicted they
will be better able to pursue acquisitions and raise capital.
"A focused, coherent straightforward structure [will] allow them
to focus on their end-markets and have renewed license to do
mergers and acquisitions," he said.
Danaher's stock was recently trading up 1.4% at $87.19.
Write to Bob Tita at robert.tita@wsj.com
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