While Baxter International and W.R. Grace & Co. battled loudly last week over Grace's dialysis unit, industry experts say the planned spinoff of that unit would have little effect on the structure or economics of the market.
Last week, Grace said it will spin off its kidney dialysis unit, National Medical Care, into a new company controlled by Fresenius A.G., a German medical technology firm.
The announcement came two days after Deerfield, Ill.-based Baxter International publicized its intentions to buy Grace's renal unit for $3.8 billion, an offer Grace rejected.
Grace declined to estimate the total value of the Fresenius transaction. Under the deal, NMC would spin off from Grace, paying the parent company $2.3 billion, which the unit would borrow. Grace shareholders would receive 44.8% of the new company. The exact value of that stake is unclear. Fresenius and other investors would own the remaining 55.2%.
Grace also would retain certain assets of its healthcare unit, valued at $200 million.
Meanwhile, Baxter has been openly entreating Grace shareholders to reconsider its offer. Grace executives have not responded, other than to blast Baxter for disclosing details of talks between the two companies. Although Baxter affirmed last week that it would not boost the value of its offer, the company contends that its proposal would offer more value than the Fresenius deal.
Whether NMC becomes part of Fresenius or ends up partnering with Baxter, it will become the largest integrated dialysis services provider and supply manufacturer in the world. If the Fresenius deal goes through, the combined company could have 1996 sales of more than $3.5 billion.
However, the combination "doesn't change the dynamics of the industry at all," said Todd Richter, an analyst with Dean Witter Reynolds in New York who follows the healthcare services industry, including the renal dialysis market.
Though both Fresenius and Baxter look at NMC as a desirable and effective channel for their renal products, "it's not like putting two big service companies together," Richter said. "It is not increasing the size of either a manufacturer or a service company."
Currently, NMC has about 22% of the U.S. kidney dialysis market share, according to Alan Hull, M.D., president of the National Kidney Foundation. That will not change as a result of the merger because the addition of the Fresenius business will not increase the number of centers it operates.
Because most dialysis services are covered through Medicare, prices will not change as a result of the NMC deal, Hull said.
Named Fresenius Medical Care, the new company would be based in Germany with North American operations based in Waltham, Mass., where NMC is located.
Gerd Krick, president and chief executive officer at Fresenius, would hold the title of CEO with the merged organization. Constantine Hampers, M.D., NMC's founder whose bid to buy the unit from Grace for $3.5 billion last May was rejected, will remain with the Fresenius Medical Care management team.
The pact is subject to approval by both companies' shareholders.