Baxter's deal for smart hospital bed maker Hill-Rom swells to $10.5B

After months of rumors and reports, Baxter has finally landed on a price to acquire fellow medtech company Hill-Rom—and it's nearly a billion dollars above where talks started earlier this summer.

Weighing in at about $10.5 billion in equity value—or about $12.4 billion all told, when including Baxter’s assumption of Hill-Rom’s debts and cash on hand—the deal amount has swelled since news in late July that Hill-Rom had rebuffed an offer totaling about $9.6 billion.

The transaction will see Baxter purchase all of Hill-Rom’s outstanding stock at a price of $156 per share, up from the previously reported $144 apiece and a step above the $150 figure divulged earlier this week.

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According to the companies, the final amount represents a 26% premium above the “unaffected stock price as of July 27,” or about $124, which was the day before Bloomberg revealed Hill-Rom’s initial rejection, sending the company’s stock up 10%.

Following the deal’s official announcement, Hill-Rom’s stock went up about 4% to about $151, while Baxter’s also grew about 4% to just over $80.

The resulting company would have a combined pro forma revenue for 2020 of $14.6 billion, drawn from Hill-Rom’s medical devices and equipment ranging from smart hospital beds to vital sign monitors as well as Baxter’s offerings in renal care, medication delivery and advanced surgery.

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Baxter describes the deal as the bringing together of complementary product portfolios, with combinations in connected care plus added opportunities to pull Hill-Rom’s mostly U.S.-focused business up through Baxter’s substantial international sales force. 

The companies expect about $250 million in annual cost synergies over the next three years across their office administration, manufacturing and supply chain efforts. The deal is slated to close in early 2022. 

Additionally, Baxter plans to assume and repay all of Hill-Rom’s debts, funded in part by secured bridge financing of $11.4 billion. On a call with investors, Baxter Chief Financial Officer James Saccaro said the company plans to rapidly pay down the transaction and maintain its credit rating.

In the meantime, Baxter has been working on a companywide digital transformation effort—spanning both the development of digital health tools for patient care and the modernization of its internal business processes. It recently expanded a multiyear agreement with Amazon Web Services and its cloud offerings to help complete the job.

Hill-Rom has also been looking to expand its digital reach, with connected care offerings such as an integrated surgery system for operating room communications and live video that it launched this summer.