(Reuters) – Medical equipment supplier Becton Dickinson & Co. (NYSE:BDX) has agreed to buy CareFusion (NYSE:CFN) , a maker of infusion pumps and other medical devices, for $12.2 billion (7.63 billion pounds) in cash and stock, marking the latest multibillion-dollar healthcare sector deal.
Becton said on Sunday it would pay a total of $58.00 a share – $49.00 in cash and 0.0777 of a share of Becton Dickinson – for each share of CareFusion. This would represent a premium of 26% to the closing price on Oct. 3.
The acquisition, recommended by the boards of both companies, would aim to combine the two U.S.-based companies’ complementary products for preparing, administering and monitoring medications and would also extend the companies’ geographic reach.
Becton Dickinson makes products to deliver and administer drugs, like disposable needles, syringes and intravenous catheters, while CareFusion makes products to store the drugs and to deliver them, such as infusion pumps.
"The combined entity will offer a 1-stop-shop’ solution for hospitals, which are looking for sourcing efficiencies as they navigate a tough healthcare environment," ISI Group analyst Vijay Kumar said in a research note. He said the new company will be a market leader in the $20 billion medication management segment.
A combined company "could improve patient safety plus reduce costs at the same time," said Vincent Forlenza, Becton Dickinson’s chairman, chief executive officer and president in a telephone interview.
Cost-related healthcare reforms, including those mandated under President Barack Obama’s Affordable Care Act, have spurred consolidation for U.S. health systems and hospitals, the main customer for suppliers of medical equipment.
"This is an industry that from a customer perspective is consolidating," said Kieran Gallahue, CareFusion’s chairman and CEO. "Healthcare systems around the globe are looking for companies that can bring greater scale to them – it is a way to drive down costs while improving safety."
Forlenza said Becton’s geographic reach – around 60% of its sales are outside of the United States and 25% of sales are in emerging markets – offers a strong platform for products from CareFusion, which currently relies on the domestic market for 75% of its revenue.
Becton said the transaction is expected to provide double-digit earnings growth, on an adjusted basis, in the first full year, and will be accretive to net earnings in fiscal year 2018.
Kumar estimated that in its first year, the deal would increase Becton’s cash earnings per share by 15%. On a "fully synergized" basis, he expects the deal to be 40% accretive to cash EPS.
Healthcare companies have been merging at a record pace, with year-to-date activity topping $346 billion, compared to $212 billion in the year-ago period, Thomson Reuters data showed as of September.
Medical device maker Medtronic Inc’s planned acquisition of Covidien Plc for $43 billion is another recent deal aimed at increasing supplier leverage in negotiating sales to hospitals.
Other recent large deals in the healthcare sector have included AbbVie‘s (NYSE:ABBV) planned $54 billion acquisition of Shire (NSDQ:SHPGY). (NYSE:AZN) fended off a $118 billion takeover attempt by Pfizer (NYSE:PFE).
Each of those transactions involved so-called "tax inversion" in which U.S. companies look to avoid high taxes by acquiring overseas assets and reincorporating in countries with lower tax rates. In reaction, the U.S. government last month took measures aimed at limiting the benefits of redomiciling overseas.
The Becton-CareFusion deal is not a tax inversion – CareFusion is based in San Diego, while Becton is headquartered in Franklin Lakes, N.J.
The deal, subject to regulatory and CareFusion shareholder approvals and customary closing conditions, is expected to close in the first half of next year.
At closing, the companies said Becton Dickinson shareholders will own around 92% of the combined company and CareFusion shareholders will own around 8%.
Goldman, Sachs & Co served as financial advisor to Becton Dickinson, and Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel. Perella Weinberg Partners LP and Barclays Plc. served as financial advisors to CareFusion, while Wachtell, Lipton, Rosen & Katz acted as its legal advisor.