Exchange Offer Presents Discount and Potential Index Entry
With Danaher Corp. (DHR) looking to entice shareholders to exchange all or some of their common stock in DHR for shares in Envista Holdings (NVST) at a potential 7% discount to NVST’s share price as the company removes its 80.6% stake, these type of IPO-Exchange Offer transactions are infrequent (recently ZTS and ELAN). Click here for our full analysis as we look further into the performance of these type of deals and the potential opportunity ahead.What’s Happening?
Shortly after listing a 17.3% stake of its dental business Envista Holdings Corp. (NVST) via an IPO on September 18, 2019, Danaher Corp. (DHR) surprised the market with the speed of divesting the remaining stake of 80.6% in NVST. Rather than waiting for the lock-up period to expire and Spinoff the remaining stake, DHR is taking the unconventional way of a Split-off exchange offer.
The VWAP pricing period began yesterday (Dec 9) and will continue today (Dec 10) and tomorrow (Dec 11), after which the final exchange ratio will be announced. The final day for tendering DHR shares is December 13, 2019 and NVST will begin trading with a free float above 50% on Monday (Dec 16).
The Edge View…
DHR - Further Divestiture Opportunities: After the successful Spinoff of Fortive Corp. (FTV) in July 2016 and now the separation of Envista Holdings Corp. (NVST), we believe the divestiture of DHR’s Water Quality and Product ID businesses can be further opportunities for DHR, since this will separate the low multiple (peers average 13.5x vs Life Sciences and Diagnostic peers’ average ~18.4x) unrelated businesses and create a pure-play healthcare-focused company with better adjusted EBITDA margins.
NVST - Cost Rationalization Paves Way for Increasing Profitability: NVST is undergoing restructuring plans of its business, which is leading to the simplification and consolidation of its brands and manufacturing facilities. As part of its transformation process, the company has made improvements in sizing its cost structure, reducing its manufacturing footprint (>35% compared to FY15) and rationalizing its products and brands (>40% compared to FY15). Consequently, these actions have yielded more than $90m in cost savings since FY16, which have been reinvested toward innovation and commercial resources.
Over the next three years, NVST is targeting a further $16m in cost savings. Therefore, we believe if this is successful, there remains meaningful opportunity to expand margins as growth rates in higher margin specialty businesses accelerates and additional savings are realized.
Danaher designs, manufactures and markets medical, industrial and commercial products and services. The company's segments include: Life Sciences, which provides research tools to study genes, proteins, metabolites and cells, in order to understand the causes of disease, identify therapies and test drugs and vaccines; Diagnostics, which provides analytical instruments, reagents, consumables, software and services that hospitals, physicians' offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions; and Environmental and Applied Solutions, which provides products and services to protect resources and global food and water supplies.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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