Baxter To Sell Its Kidney Care Unit To Carlyle For $3.8 Billion

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Baxter To Sell Its Kidney Care Unit To Carlyle For .8 Billion

On August 13, 2024, Baxter International Inc. (NYSE: BAX, $36.12, Market Capitalization: $18.4 billion), a global medtech leader, and funds managed by global investment firm Carlyle (NASDAQ: CG) announced that they have signed a definitive agreement under which Carlyle will acquire Baxter’s Kidney Care segment, to be named Vantive, for $3.8 billion (For details refer to spinoffresearch.com). Under the terms of the definitive agreement, subject to certain closing adjustments, Baxter will receive approximately $3.5 billion in cash, with net after-tax proceeds currently estimated to be approximately $3 billion. The transaction is expected to close in late 2024 or early 2025, subject to receipt of customary regulatory approvals and satisfaction of other closing conditions. Perella Weinberg Partners LP and J.P. Morgan Securities LLC are serving as financial advisors to Baxter, and Sullivan & Cromwell LLP and Baker McKenzie are serving as legal advisors to Baxter. Barclays and Goldman Sachs & Co. LLC are serving as financial advisors, and Kirkland & Ellis LLP is serving as legal counsel to Carlyle. In January 2023, Baxter announced plans to create a standalone kidney care company as part of its strategic realignment. By March 2024, after considering various separation options, Baxter in March 2024, Baxter announced that it was in discussions to explore a potential sale of the segment while still exploring a possible separation through a spin-off. After reviewing the financial impact of the potential separation pathways, management and the Baxter Board determined that selling the business to Carlyle would maximize value for Baxter stockholders and best position Baxter and Vantive for long-term success. Baxter intends to use after-tax proceeds from the transaction to reduce its debt, consistent with its stated capital allocation priorities.

Carlyle has been a leading private equity investor in the medtech sector over the past decade, with investments in medical technology and diagnostic companies totaling over $40 billion in enterprise value. Moreover, Carlyle’s investment in Vantive is made in partnership with Atmas Health, a collaboration among three industry executives founded in September 2022 to focus on acquiring and building a market-leading healthcare business. The partnership, consisting of Kieran Gallahue, Jim Hinrichs, and Jim Prutow, brings a proven track record of creating value in the medical technology industry. Kieran Gallahue will serve as the Chairman of Vantive, working with CEO Chris Toth and the Vantive management team.

Baxter Highlights Preliminary Financial Expectations Following Pending Kidney Care Divestiture

Baxter is targeting annual operational sales growth of 4%-5% following the sale of its Kidney Care segment, driven by innovation and market expansion. For 2025, the Company expects an adjusted operating margin of about 16.5%, with a 100 basis point negative impact from stranded costs, partially offset by transition service and manufacturing supply agreements. Baxter plans to focus on higher-growth investments and aims to reduce its leverage to below 3.0x by the end of 2025, using proceeds from the sale to repay debt. The Company expects to fully offset stranded costs by 2027 through cost containment initiatives. Further strategic and financial details will be provided at a 2025 investor conference, with updated financial schedules reflecting the divestiture expected before the third-quarter 2024 earnings release.

Valuation and Recommendation

Our intrinsic value of $40.00 for BAX (Stub) is based on a 2024e EV/ EBITDA multiple of 11.0x (~5% discount to its peer median multiple of 11.6x). Our fair value estimate for Vantive (Spin-Off) stood at $8.00 ($4 billion in equity value) per share based on a 2024e EV/ EBITDA multiple of 10.0x. We had arrived at a consolidated target price of $48.00 per share for Baxter International Inc. We have now dropped coverage on BAX as the planned spin-off transaction has been canceled.

Company Description

Baxter International (Parent)

Baxter International Inc., through its subsidiaries, provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products, advanced surgical equipment; smart bed systems; patient monitoring and diagnostic technologies; and respiratory health devices. These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices, and patients at home under physician supervision. Baxter’s global footprint and the critical nature of its products and services play a key role in expanding access to healthcare in emerging and developed countries. For FY23, the Company reported net sales of $14.8 billion.

Vantive (Spin-Off) – Cancelled

Vantive is a leader in global kidney care, offering products and services for peritoneal dialysis, hemodialysis and organ support therapies, including continuous renal replacement therapy (CRRT). The business has over 23,000 employees globally and had FY23 revenues of $4.5 billion.

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