Danaher to Buy Cepheid for $4B in First Deal Post Spinoff

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Danaher Corp. DHR announced its first major acquisition since it spun off a large chunk of its business. The company has inked a definitive agreement to buy molecular diagnostics company Cepheid CPHD for $53.00 per share.

The news comes two months after the life-science instrument giant completed the spinoff of its industrial technology and testing unit, Fortive Corporation FTV .

The Cepheid Deal

Sunnyvale, CA-based Cepheid develops molecular systems for genetic testing. It develops and manufactures fully-integrated testing systems that can be used to screen genetic disorders and manage infectious diseases.This technology assists doctors with diagnosis, prognosis and treatment options.

Under the deal, Cepheid will become a part of Danaher's diagnostics unit.

The deal price marks a 54% premium over Cepheid's share price at market close on Friday, which values the company at about $4 billion, including debt. Danaher expects to finance the transaction with cash and new debt.

The transaction is subject to customary closing conditions, and shareholder and regulatory approval. It is scheduled to close by the end of this year.

DANAHER CORP Price and Consensus

DANAHER CORP Price and Consensus | DANAHER CORP Quote

Strategic Rationale Behind the Deal

The deal makes strategic sense as Danaher has a huge diagnostics business, but does not enjoy a robust foothold in molecular diagnostics, where Cepheid is a market leader. Cepheid's comprehensive installed base, test menu and pioneering product portfolio will fortify Danaher's presence in this high-growth segment.

Further, ease-of-use, scalability and the prospect of shifting to POC testing lends a differentiated position to Cepheid in the industry.

Per Danaher, Cepheid's addition will boost operational efficiencies and expand margins in its $5 billion-worth diagnostics unit. Cepheid is likely to generate $618-$635 million in revenues this year, which will add to Danaher's $5 billion revenue base.

Danaher anticipates the deal to be accretive to earnings by 5 cents a share in the first year, which is likely to rise to 30 cents by the fifth year.

Danaher's Deep Restructuring

Danaher has consistently followed an aggressive acquisition strategy and continues to explore expansion opportunities in targeted regions. The year 2015 saw the company close acquisition of 14 businesses worth approximately $14.5 billion. Further, during the first half of 2016, Danaher closed six bolt-on acquisitions, including Hach's takeover of Lufft Mess, for $105 million.

In a bid to expand the opportunities for capital deployment, Danaher has also been focused on improving growth through streamlining its business. In July, Danaher finished the spinoff of its test and measurement, industrial technologies and petroleum platform segments into their own public company, Fortive. The decision followed a deal to take over Pall Corporation for about $13.8 billion, in 2015.

Danaher is gradually evolving as a healthcare company, and has strengthened its foothold in the healthcare and dental markets. The company's platforms in Life Sciences and Diagnostics have been performing well and the Cepheid acquisition will lend significant breadth and momentum to Danaher's operations.

Danaher presently carries a Zacks Rank #3 (Hold). A better-ranked stock from the same space is Bunzl plc BZLFY , sporting a Zacks Rank #1 (Strong Buy).

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DANAHER CORP (DHR): Free Stock Analysis Report

BUNZL PUB-ADR (BZLFY): Free Stock Analysis Report

CEPHEID INC (CPHD): Free Stock Analysis Report

FORTIVE CORP (FTV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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