Consolidation in the dialysis-care market continued last week with Fresenius Medical Care's agreement to buy Renal Care Group for $3.5 billion in cash, $119 million of which would go to Renal Care executives and directors.
With the purchase, Fresenius, based in Bad Homburg, Germany, would remain the leading provider of dialysis services in the U.S., a position threatened by another big purchase announced late last year by DaVita.
DaVita agreed to buy Gambro Healthcare US for $3.05 billion. That deal is expected to pass muster with the Federal Trade Commission, after divestment of some dialysis centers.
Executives at Renal Care said they are optimistic that their deal also will win FTC approval, David Dill, executive vice president and chief financial officer, said during a conference call.
"I think it's a good transaction in many regards," said Ryan Daniels, equity research analyst for William Blair & Co. Patients will get access to best practices from both groups and Fresenius will be able to retain its No. 1 spot, Daniels said.
Despite the optimism, Moody's Investors Service was less thrilled for Renal Care bondholders. Fresenius will adopt $500 million in debt as part of the purchase, and Moody's placed that debt under review for a possible downgrade, given that the purchase is expected to be financed with even more debt, according to a statement from Moody's.
Combined, the companies had $7.5 billion in revenue in 2004 and, as of March, 117,000 patients and more than 1,560 clinics in North America.
The deal isn't expected to slow consolidation in the dialysis industry. In fact, it could spur more acquisitions, Daniels said.
Renal Care executives said they will not slow their pace of purchasing dialysis centers or in opening new ones as a result of the deal. Dill said the company expects to open 20 to 25 new facilities in 2005.
Fresenius and Renal Care are among the dialysis companies subpoenaed in a U.S. Justice Department investigation of the industry.
If the purchase of Renal Care goes through as planned, top executives and directors at Renal Care will reap millions of dollars on the 2.49 million shares they control, based on the firm's April 28 proxy statement.
The biggest chunk will go to Gary Brukardt, president and CEO, who controls shares that will be worth $31 million.