O.C.'s Beckman Takes Big Step in Acquisition

By JOHN O’DELL

Sept. 3, 1997 12 AM PT

TIMES STAFF WRITER

FULLERTON —

In a $1.15-billion melding of two major medical diagnostic equipment makers, Beckman Instruments Inc. said Tuesday it has agreed to purchase privately owned Coulter Corp. of Miami to create a formidable force in a highly competitive market.

The combined companies, to be called Beckman Coulter Inc., will manufacture instruments that can perform almost all of the routine blood analysis and diagnostic tests done in medical laboratories around the world.

The company will be headquartered in Fullerton, with the Coulter operations retaining their base in Florida.

Officials at Beckman would not discuss employment issues related to the purchase, except to say that Beckman’s existing work force should not be affected. The company has 6,100 employees, including 2,000 in Orange County.

The new Beckman Coulter will have almost $2 billion in annual sales, making it the fifth-largest player in the $19-billion market and giving it considerable clout in negotiating with hospital and laboratory chains.

The purchase--Beckman’s first significant acquisition since it was spun off from the old SmithKline Beckman Inc. in 1988--is the latest of a string of acquisitions in the medical instruments industry.

Roche Holding AG of Switzerland agreed in May to buy German diagnostics company Boehringer Mannheim GmbH for $11 billion. In August, an investor group led by Boston’s Thomas Lee Cos. agreed to buy medical test-equipment maker Fisher Scientific International for $1.4 billion. A few weeks later, Perkin Elmer said it had agreed to buy PerSeptive Biosystems, another maker of analytical instruments for the biotechnology market, in a stock transaction valued at about $360 million.

Beckman itself has acquired four other businesses in the past two years, but none of the purchases were major expenses for the company.

The moves are aimed at cutting costs amid growing competition to supply testing equipment to hospitals and laboratories.

“The customers are consolidating and the suppliers are consolidating,” said Robert Dunne, an industry analyst with Wasserstein Perella Securities in New York. “The only question was whether Beckman would be a consolidator, or would be consolidated into some other company.”

Beckman Chief Executive Louis T. Rosso said in a conference call Tuesday morning that Coulter’s operating profit margins had been “less than half of Beckman’s,” but predicted they could be doubled to Beckman’s standards by 2000.

The acquisition, scheduled to close in the fourth quarter, also should strengthen Beckman’s overseas business. Half of Coulter’s sales come from outside the United States. The deal still must be approved by federal regulators.

Beckman officials said the acquisition will depress next year’s profits, but should bolster earnings per share slightly in 1999 and add “significantly” to profits after that.

The Beckman and Coulter names are “pervasive” in the diagnostic equipment market, said Michael Whelan, Beckman’s director of investor relations. “We participate in a segment of the hospital laboratory market that they are not in, but we sell to the same customers. So this acquisition means that we can expand our market without overlapping.”

Dunne and other analysts liked the deal. One big plus, they said, is that the companies do not make competing equipment, so the combined company will not have to eliminate product lines.

On the downside, however, Beckman is taking on a huge debt load of $1.3 billion to finance the deal and is planning on selling a variety of still-undisclosed real estate assets to reduce the debt. Until that happens, however, the company’s bonds are likely to be considered risky investments.

Indeed, Standard & Poor’s moved quickly Tuesday to place a cautionary “negative implications” label on Beckman’s debt. “Although the acquisition enhances the company’s business position, it significantly reduces its financial flexibility,” the credit rating agency said.

“Additionally, [Beckman] will be greatly challenged to integrate a company that is nearly its equal in size. Consequently, the ratings could fall below investment-grade.”

Beckman officials said the Fullerton-based company will pay $875 million in cash and assume $175 million in debt and $100 million in “extraordinary obligations” to purchase Coulter. The extraordinary items are related to a change-of-control plan at Coulter that rewards the Miami company’s officers and employees if the company is sold.

That would put Beckman Coulter’s debt-to-equity ratio at somewhere around 90% after the merger, Dunne said. A 60% ratio is considered high in most instances.

But Dunne believes that the high debt level will be of short duration and that the combined companies should rebound quickly.

“It’s a decent deal, although very dilutive in the short term,” he said. “Still, it makes [Beckman Coulter] a major player in the diagnostics business.”

Beckman said it will take a fourth-quarter charge of about $300 million, equal to about $10 per share, and that it expects 1998 earnings to be depressed by as much as $2 per share because of the acquisition. The company posted a profit of $74.7 million, or $2.58 a share, in 1996.

Beckman shares dropped slightly Tuesday in heavy trading on the New York Stock Exchange. The stock closed at $46.63 a share, down 44 cents.

The company, founded in 1935, makes instruments that perform chemical analyses of blood samples to help physicians diagnose disease.

The company had sales of $1.03 billion in 1996, with its medical diagnostic equipment sales accounting for about $650 million of the total. The rest comes from Beckman’s pharmaceuticals research and development business.

Beckman company was independent until 1982, when it was acquired for $1 billion by Philadelphia pharmaceuticals giant SmithKline Inc. in a diversification drive. SmithKline--then called SmithKline Beckman--spun the Orange County company off to shareholders six years later because it felt that Beckman’s scientific instruments business no longer meshed with its refocus on drug development.

As part of the spinoff, Beckman sold all of its nonmedical businesses.

Coulter was founded in 1958 by brothers Wallace and Joseph Coulter, inventors of a technology that enables researchers to tally the distribution of red and white cells in the blood.

With $700 million in annual sales last year, the company is the world’s leading supplier of systems for blood and cell analysis.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Another Medical Merger

Beckman Instruments is acquiring Miami-based Coulter Corp. Details on the two firms:

BECKMAN INSTRUMENTS

Headquarters: Fullerton

Chairman/CEO: Louis T. Rosso

Business: Laboratory diagnostic equipment

Employees: 6,100

Status: Public

Exchange: NYSE

1996 sales: $1.03 billion