Linde AG (LIN) agreed to acquire Lincare Holdings Inc. (LNCR:US) for about $3.8 billion to add U.S. oxygen and respiratory therapy services delivered to the home, in the German company’s biggest acquisition since 2006.
Linde will pay $41.50 a share for Lincare, using a loan and a share sale of as much as 1.5 billion euros ($1.9 billion), the Munich, Germany-based industrial-gas supplier said today. That’s 64 percent more than the price on June 26, before a media report on talks between the companies. Linde shares fell as much as 5 percent in Frankfurt trading.
Chief Executive Officer Wolfgang Reitzle has made health care a growth area and agreed to buy Air Products & Chemicals Inc. (APD:US)’s home-care business in January. The Lincare purchase reunites two business linked a century ago and will double Linde’s North American gases sales. Reitzle said he tracked Lincare as a potential target for five years and was aware of rival interest. In the end, negotiations were speedy, he said.
“We think the deal makes sense,” said Markus Mayer, an analyst at Kepler in Munich. “The multiples are not cheap. Therefore, we didn’t expect a positive share price reaction for Linde today.”
Linde declined as much as 6.1 euros, or 5 percent, to 116.55 euros in Frankfurt, the biggest drop since September. The shares traded at 120 euros as of 2:55 p.m.
Trip to U.S.
Reitzle said he will spend the next 10 days or so meeting with key Lincare investors, as well as analysts. Its board unanimously backs the transaction, though there is no pre- agreement among Lincare investors to tender their shares. A counter bid isn’t expected, he said.
Based on estimates for 2012, Linde is paying 8.93 times earnings before interest, taxes, depreciation and amortization compared with a median of 8.4 times, according to data compiled by Bloomberg. It’s unlikely to recover its cost of capital before 2015, Bank of America (BAC:US) Merrill Lynch analyst Laurent Favre said.
The total price is $4.6 billion including about $800 million in assumed debt, said Matthias Dachwald, a spokesman for Linde. The transaction will be paid for mainly with a $4.5 billion loan that will be refinanced through debt and equity issuances, with expected completion in the fiscal third quarter.
Morgan Stanley and Perella Weinberg Partners advised Linde. JP Morgan advised Lincare.
The transaction reunites two distant corporate cousins after almost a century apart. Carl von Linde, who founded his German firm in 1879, created a related U.S. company known as Linde Air Products with partners in 1907, according to a history of Linde on the company’s website. Union Carbide Corp. acquired the U.S. operation in 1917. It later created a unit called Linde Homecare Medical Systems, subsequently shortened to Lincare.
Union Carbide sold Lincare to a group of investors in 1990, and they sold shares to the public in 1992.
Linde generated about 18 percent of its 300 million euros in home-care sales from the Americas last year, out of a market valued at 4 billion euros. Analysts estimate (LNCR:US) Lincare sales will increase 10 percent this year to $2.04 billion, according to data compiled by Bloomberg.
The medical-gas market will grow 50 percent to 16 billion euros by 2020, according to the German company.
The Lincare purchase is Linde’s biggest since it bought BOC Group Ltd. in 2006 for about $16 billion. That acquisition trimmed to four the number of larger industrial gas companies, making further consolidation possible only in specialty areas.
The biggest competitors in the U.S. home respiratory market for Linde will be smaller, independent firms. Lincare was the biggest with 26 percent of the 2009 respiratory market, followed by Apria Healthcare Group Inc., Rotech Healthcare Inc. (ROHI:US), and American Homepatient Inc., according to a 2010 presentation by Rotech.
Apria is owned by the private-equity firm Blackstone Group LP (BX:US), and Highland Capital Management LP owns American Homepatient.
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