Baxter has sold its Renal Care Division to Carlyle for $3.8 Billion

On August 13, 2024, Baxter International Inc. (NYSE: BAX, $36.12, Market Capitalization: $18.4 billion), a global leader in medtech, and funds managed by global investment firm Carlyle (NASDAQ: CG) announced that they have signed a definitive agreement. where Carlyle will acquire Baxter’s Kidney Care division, to be called Vantive, for $3.8 billion (For details see spinoffresearch.com). Under the terms of the definitive agreement, subject to certain closing adjustments, Baxter will receive approximately $3.5 billion, with net after-tax earnings of 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 JP Morgan Securities LLC are acting 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 acting as financial advisors, and Kirkland & Ellis LLP is serving as legal counsel to Carlyle. In January 2023, Baxter announced plans to create an independent kidney care company as part of its strategic realignment. In March 2024, after considering various spin-off options, Baxter in March 2024, Baxter announced that it was in discussions to explore a possible sale of the division while exploring a possible spin-off with cheating. After evaluating the financial impact of the potential separation options, Baxter’s management and Board determined that selling the business to Carlyle would add value to Baxter’s stockholders and position by the best of Baxter and Vantive for long-term success. Baxter plans to use the after-tax proceeds from the business to reduce its debt, according to cash flow priorities.

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

Baxter Highlights Early Financial Expectations Following Expected Profits in Kidney Care

Baxter is targeting annual sales growth of 4%-5% following the sale of its Kidney Care division, driven by innovation and market expansion. For 2025, the Company expects an adjusted operating margin of approximately 16.5%, with a negative impact of 100 basis points from non-operating expenses, partially offset by transition services and concessions supply chain. Baxter plans to focus on growth investments and aims to reduce its leverage ratio below 3.0x by the end of 2025, using the proceeds from the sale to pay down debt. The company expects to reduce total costs by 2027 through cost-saving initiatives. More strategic and financial information will be provided at the 2025 investor conference, with revised financial programs reflecting the expected dividend ahead of the 2024 third quarter earnings release.

Price and Advice

Our $40.00 intrinsic value for BAX (Stub) is based on a 2024e EV/ EBITDA multiple of 11.0x (~5% discount to its peers median of 11.6x). Our fair value estimate for Vantive (Spin-Off) stands at $8.00 ($4 billion in equity value) per share based on a 2024e EV/EBITDA of 10.0x. We had arrived at a consensus price of $48.00 per share for Baxter International Inc. We are now off the BAX news as the planned round trip has been cancelled.

Company Description

Baxter International (Parent)

Baxter International Inc., through its subsidiaries, offers a broad portfolio of essential healthcare products, including acute and chronic dialysis treatments; sterile intravenous (IV) solution; infusion system and equipment; parenteral nutritional therapy; inhalation anesthetics; generic injectable medicine; hemostat and sealant surgical products, advanced surgical instruments; smart bed systems; patient care and diagnostic technology; and spiritual health resources. These products are used by hospitals, kidney transplant centers, nursing homes, rehabilitation centers, doctor’s offices and patients at home under medical care. Baxter’s global presence and the critical nature of its products and services play an important role in expanding access to health care in both developing and developed countries. For FY23, the Company reported total sales of $14.8 billion.

Vantive (Spin-Off) – Canceled

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