Monday, February 7, 2011

Carlyle Group Bids for Beckman Coulter

Reuters reported on bids for medical diagnostics company Beckman Coulter.  The Feb. 3 piece stated several private equity underwriters (PEU's) expressed interest:

Commitment letters from banks to finance private equity-led deals were also required to be submitted on Wednesday, one of those sources said. The sources declined to be named because the process is not public.

Two private equity consortia have been pursuing Beckman -- one made up of Blackstone and TPG Capital, and the second made up of Apollo and Carlyle, sources previously told Reuters.
The stock was $57 per share when Bloomberg reported on PEU buyout interest.   Blackrock submitted an SEC filing showing it purchased 4.85 million shares or 7% of Beckman Coulter.  Bank of New York Mellon also bought 1.26 million shares of Beckman.

Beckman Coulter joins Johnson & Johnson with numerous quality concerns. A company SEC filing stated:

Our recent U.S. quality challenges have prompted significant ongoing attention in this area to ensure that we live up to the expectations of our customers. We have identified root causes and developed remediation plans. Implementation is underway with some projects continuing through 2011. With customer satisfaction and retention our foremost objective, we have shifted some R&D resources from future products to current products until we resolve our quality issues.
Carlye knows quality problems.  The PEU invested in Yashili, a Chinese milk producer selling melamine poisoned products.  Like the Chinese, it's not Carlyle's only quality nightmare.  Affiliate Claris Lifesciences produced IV bags with floating matter.  Vought Aircraft Industries delayed the Boeing 787 Dreamliner and shorted Texas taxpayers on a $35 million refund.  LifeCare Hospitals lost 25 patients after Hurricane Katrina and has been aggressively fighting wrongful death lawsuits.  SemGroup, a staid energy pipeline firm, imploded due to billions in bad energy bets.  Carlyle's SemGroup defense is "puffery."

PEU's love health care.  Recall what KKR's purchase of HCA did to health care costs.  Interest expense rose by $1.5 billion.  KKR also milked HCA of $4.25 billion in special dividends, borrowing to do so.  Two things continue to soar, health care costs and Carlyle's assets under management.  Carlyle's Cedar I Holding Company raised $1.67 billion to invest in high tech companies.  Might it invest in Beckman?

Interim CEO Bob Hurley's base pay rose to $800,000 and his bonus potential to 120%.  How might a PEU deal wash into Hurley's personal finances?  That information could soon be available to shareholders.

Beckman Coulter's 2010 annual interest expense is roughly $100 million.  How high might that go under a buyout?  PEU's look to bleed Beckman Coulter, but who's counting?

Update 2-8-11:  Danaher won the battle for Beckman Coulter, paying $83.50 per share, a 45% premium from its December 9 price.  How did Blackrock and Bank of New York Mellon make on the deal?  How will Danaher control or lower health care costs through the buyout?