Baxter's Reported Interest To Buy Gambro Fits Well With Its Long-Term Growth Objectives

| About: Baxter International (BAX)

Baxter International's (NYSE:BAX) reported intention to buy Sweden-based Gambro AB for $4 billion should help the company achieve its long-term growth objectives for dialysis therapy and global expansion.

On Friday, Wall Street Journal reported a possible take over of Gambro AB for $4 billion by Baxter. Following the report, the stock witnessed a 4% gain on Friday. This clearly demonstrated investors' support for the deal and the benefits Baxter could get from the acquisition. This is primarily because of the fact that Gambro's medical products perfectly fit well in Baxter's product lines. However, the stock is trading down on Monday probably due to overall weakness in the market.

Gambro is one of the biggest makers of kidney and liver dialysis equipment globally. Its equipments including, myeloma kidney therapy and other extracorporeal therapies are sold in more than 100 nations. The company is controlled by AB and EQT with 49% and 51% respectively.

For Baxter, revenue from renal therapy is the biggest among the medical products division. The company generated 18% of its total revenue from renal therapy, according to its Form 10-K filing. The company generated revenue of $13.89 billion in 2011. Of this, medical products accounted for $7.8 billion representing 56.2% of the total revenue. From this, renal therapy generated revenue of $2.53 billion in 2011, representing 32.4% of the medical products segment revenue.

Baxter has identified the at-home peritoneal dialysis market as one of the key growth areas in the next few years. On the other hand, Gambro's main customer base is its in-clinic or hospital division. This should complement Baxter's existing hemodialysis franchise.

Meanwhile, in a research note to clients, Goldman Sachs analyst David Roman said, "Based on data available from Investor AB, the reported purchase price of US$4 bn would imply a multiple of 2.5X sales and 13.1X EBITDA based on 2011 operating metrics and current FX rates."

Looking at the growth prospects, the global trend for the renal dialysis equipment market is estimated to witness a compound annual growth rate of 5.7% until 2018, with revenue likely to reach $14.3 billion. The changes in lifestyle are the significant cause for the worldwide growth in kidney dialysis equipment demand.

Gambro has been an acquisition target for Baxter International for quite some time, and all its efforts were not successful until now. There is every possibility that the reported current negotiations could fail. However, if the deal comes through for Baxter, it will be able to consolidate its position in the kidney dialysis market and grow further to achieve its long-term growth objectives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.