Hospitals in recent years have pushed back against the prices charged by devicemakers for medical products ranging from implants to less expensive surgical supplies, in some cases using mergers and acquisitions with other hospital systems to strengthen their own negotiating clout.
In its most recent annual securities filing, BD, based in Franklin Lakes, N.J., cited pricing pressure on some medical products as affecting the company's overall growth.
As a result, manufacturers are seeking new ways to market their products to hospitals in order to offset pricing pressure. “How do medical-device manufacturers better position themselves to provide product shopping not just to physicians but also hospital administrators?” said Joanne Wuensch, an analyst for BMO Capital Markets Corp. “This is a continuation of that trend.”
The proposed acquisition is the third multibillion-dollar deal in the medical technology sector so far this year. Warsaw, Ind.-based Zimmer Holdings in April announced plans to acquire Biomet, another orthopedic device manufacturer, also based in Warsaw, for $13.35 billion. Two months later, Medtronic surprised analysts when it proposed buying Covidien, an Irish supplier of surgical supplies, for $42.9 billion.
At the time of that deal, some analysts predicted BD would be next in line to make an acquisition. Barclays Capitals analyst Matt Taylor said in a June research note that he would not rule out a bigger deal for BD, particularly given that the company had made seven tuck-in acquisitions in three years before announcing its bid for CareFusion.
With three deals totaling nearly $70 billion underway, analysts say they still expect to see more consolidation among medical technology companies. Similar to the Medtronic acquisition, BD and CareFusion sell complementary but different medical products to hospitals.
BD reported about $8 billion in sales in fiscal 2013, with its medical segment making half of its revenue. If the deal closes, CareFusion's business lines will be housed in BD's medical segment, which sells products such as needles, syringes and intravenous catheters. CareFusion reported about $3.8 billion in sales in fiscal 2014.
The company said the deal would give it a product portfolio that addresses the full spectrum of medication management—beginning with preparation in the pharmacy and extending through dispensing in the hospital and patient monitoring—which BD describes as a $20 billion business.
The boards of both companies have approved a definitive agreement, which is subject to shareholder approval and regulatory review. The companies said they expect the deal to close in the first half of 2015.
BD secured $9.1 billion in bridge financing from Goldman Sachs to fund the transaction. BD shareholders would own about 92% of the combined company and CareFusion shareholders would own the rest.
CareFusion made headlines this year when it reached a $41 million agreement with the U.S. Justice Department resolving allegations of off-label marketing.
Federal officials alleged in the agreement that the company had paid $11.6 million to the leader of a National Quality Forum panel that endorsed the use of CareFusion's ChloraPrep skin preparation product.
CareFusion would become part of BD's medical segment, and BD Chief Operating Officer William Kozy has been assigned to lead the integration. BD would maintain a presence in San Diego, where CareFusion has its headquarters, the news release said.
Follow Jaimy Lee on Twitter: @MHjlee
