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Linde to pay $4.6B for Lincare

by Renee Cordes | Published July 2, 2012 at 12:52 PM

German conglomerate Linde AG will become the leader in the fast-growing market for respiratory therapies taken at home through the acquisition of Clearwater, Fla.-based Lincare Holdings Inc. for an enterprise value of $4.6 billion.

Linde is offering $41.50 per share in cash, or $3.8 billion in total, for market leader Lincare and will assume $800 million in debt, a Linde spokesman confirmed. The share price represents a 64% premium over the target's closing share price June 26, just before media reports about talks between the companies.

Shares in Linde shed 2.9% Monday morning in Frankfurt to €119.10, for a total market capitalization of about €20.5 billion ($25.9 billion). Lincare shares closed Friday up 5.3% at $34.02 on the New York Stock Exchange, putting its market value at about $2.97 billion. Linde will pay about 10.1 times Lincare's 2011 Ebitda of $454 million. The deal, announced Monday, comes after Linde in January agreed to buy Air Products and Chemicals Inc.'s European homecare business for €590 million. It will be Linde's biggest purchase since its 2006 takeover of U.K. conglomerate BOC Edwards plc for £8.2 billion ($12.9 billion).

Following the Lincare acquisition, Munich-based Linde will more than double sales from healthcare to €2.8 billion (pro forma), from €1.2 billion in 2011. The enlarged Linde will also be the only global gases company with a leading position in products designed for use by invalids at home. Linde said this is the fastest-growing segment of the healthcare industry.

"The strategic acquisition enables us to take the next big step in the stable, sustainable and profitable business field," Linde CEO Wolfgang Reitzle said in a statement.

"Against the background of demographic changes, the healthcare industry is a megatrend in which we will be able to participate more strongly in the new setup," he said.

In a conference call Monday, Reitzle said Linde has had Lincare on its radar for about five years. However, he was unable to give any details of the auction, which reportedly attracted Air Liquide SA and at least one private equity bidder. Reitzle said the company does not expect any antitrust issues in the U.S. given that Linde has no presence in the U.S. home respiratory market. For the same reason, integration should be "super fast," he said.

Linde plans to finance the acquisition initially through a $4.5 billion loan, to be underwritten by Deutsche Bank AG and Morgan Stanley, and through available cash. It will later sell up to $1.5 billion of shares and issue bonds to refinance the loan.

The deal is due to close in the third quarter. Linde expects the deal to be immediately accretive to earnings. The capital increase should also give the buyer "full firing power" for acquisitions in other areas including clean energy projects, Reitzle said.

Although the company mainly goes for smaller and medium-sized targets, he said that Lincare offered a "unique opportunity."

Lincare's treatments include oxygen, sleep and inhalation therapies. In the U.S. home respiratory market, Lincare competes with Blackstone Group LP's Apria Healthcare Group Inc.; Rotech Healthcare Inc.; and American HomePatient Inc., owned by Highland Capital Management LP.

The takeover will reunite distant corporate cousins with common roots after more than a century apart. Both trace their origins to Carl von Linde, a German engineer who developed refrigeration and gas separation technologies. Linde Homecare Medical Systems became a subsidiary of Union Carbide Corp. when it acquired Linde's U.S. business in 1917. Today's Lincare was carved out from Union Carbide in 1987. Reitzle said the decision to acquire Lincare had nothing to do with their common origins.

Linde took financial advice on the deal from Morgan Stanley and Perella Weinberg Partners LP. Cravath, Swaine & Moore LLP's Richard Hall was counsel. A Weil, Gotshal & Manges LLP team led by Michael Aiello and including Ken Heitner, Annemargaret Connolly, Michael Epstein, John Scribner, Michael Kam and Stuart Morrissy advised Lincare.

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