A Medical Device Daily

Fresenius Medical Care (Bad Homburg, Germany), already having a major share of the world’s dialysis services sector and a manufacturer of dialysis products, will grow even larger with its acquisition of Renal Care Group (Nashville, Tennessee), reported yesterday.

Fresenius will pay $4 a share in cash for Renal Care, putting the deal value at about $3.5 billion. In addition, the trans- action will include assumption of Renal Care’s outstanding indebtedness of around $500 million.

Following deal closing, the combined company will be the largest provider of dialysis services in the U.S.

Fresenius termed Renal Care “a fast-growing, highly profitable dialysis service provider that will be an attractive complement” to its U.S. business. Renal Care Group’s 2004 revenue was about $1.35 billion, with an EBIT of $254 million and an income of $122 million.

As of the end of March, Renal Care owned more than 425 dialysis clinics and served more than 30,400 patients. The consolidation will result in some of Renal Care’s clinics being sold, but not a large number, according to Ben Lipps, CEO of Fresenius Medical.

Renal Care’s shareholders liked the deal, with its shares climbing more than 16% to $45.71 in Wednesday trading. But the shares of Fresenius on the Frankfurt exchange dropped a few percentage points, indicating a feeling that the larger company was paying too much in the deal.

The 2004 combined revenue of Fresenius Medical Care and Renal Care was about $7.5 billion, and the companies together served about 117,000 patients in more than 1,560 clinics in North America and more than 156,000 patients in more than 2,000 dialysis clinics worldwide.

Lipps said that the deal solidifies Fresenius Medical’s position “as the leader in dialysis services in the U.S. With its service network, Renal Care Group provides an excellent strategic and geographic fit to Fresenius Medical Care’s operations in the world’s largest dialysis market.”

He added: “Fresenius Medical Care will be well positioned to create additional growth potential for its dialysis product business and will provide opportunities to successfully leverage the company’s cost leadership position.”

Gary Brukardt, president and CEO of Renal Care Group, said that the two firms have three important assets in common: a commitment to quality improvement, highly motivated staff and “visionary management.” He added that the deal “demonstrates the value that Renal Care Group has built in the marketplace . . . By joining with Fresenius Medical Care, we will give our associates and affiliated physicians the opportunity to work with the world’s leading dialysis therapy company, and our shareholders will receive an excellent return on their investment. We are convinced that our patients will be well served and will continue to receive high-quality dialysis care.”

At the $48-a-share deal price, shareholders of Renal Care Group would receive a premium of 22% over the company’s closing price on Tuesday.

Fresenius said it would finance the deal primarily through an extension of its senior credit agreement. The existing $1.2 billion credit agreement will be replaced by a $5 billion senior credit facility.

Financing commitments have been received from Bank of America and Deutsche Bank, with Deutsche Bank acting as financial advisor to Fresenius Medical Care.

The transaction is subject to the approval of Renal Care Group’s shareholders and other customary closing conditions, including the expiration of the waiting period under the Hart-Scott Rodino waiting period.

The acquisition – expected to close in the second half of 2005 – is anticipated to be neutral to slightly accretive to earnings in 2006 and “clearly accretive” to earnings in 2007 and thereafter, Fresenius said.

In another announcement from Fresenius, the company said that it would offer to holders of its 26.4 million preference shares the opportunity to convert those shares into ordinary shares.

Lipps said this will “improve and enhance our financial flexibility to the benefit of all stakeholders. The step toward just one share class will significantly improve trading liquidity in the ordinary shares and will simplify our share structure.”

Besides providing dialysis care, Fresenius Medical also is a leading provider of dialysis products, such as hemodialysis machines, dialyzers and related disposable products.