Baxter International withdrew its $3.8 billion offer to purchase the kidney dialysis unit of W.R. Grace & Co., citing Grace's refusal to hold discussions on the bid.
Since Baxter made public its intent to purchase Grace's National Medical Care unit Jan. 31, Grace announced it would merge NMC with Fresenius, a German dialysis company (Feb. 12, p. 3). Days later, Baxter said it would not increase the value of its bid.
The combined businesses of NMC and the dialysis equipment operations of Fresenius would form the world's largest integrated dialysis company. Its 1996 revenues could exceed $3.5 billion.
Vernon Loucks, Baxter's president and chief executive officer, notified Grace in a letter late last week that Baxter would retract its offer.
Officials at Boca Raton, Fla.-based Grace had no comment at deadline.
The total value of the Fresenius merger is unclear, but industry observers have estimated it at $4 billion.
In the letter, Loucks reiterated Baxter's claims that the Fresenius bid is worth less to Grace than the Baxter offer. The Fresenius deal would put the dialysis unit in considerable debt and offer about $500 million less to Grace shareholders, Deerfield, Ill.-based Baxter asserts.
In going with Fresenius, Grace shareholders will own 44.8% of the newly formed company, to be named Fresenius Medical Care. NMC will spin off from Grace and then give Grace $2.3 billion in cash, a payment that will leave the merged company with more than $2.7 billion in debt.
Loucks said another potential weak spot in the Fresenius deal is its agreement to assume all financial liability that may result from a federal investigation of the Grace unit. Baxter would have assumed up to $100 million in liabilities.
On Feb. 13, Grace said NMC is the target of a grand jury investigation into possible violations of criminal law.