Danaher Corp: Acquisition Of X-Rite Is Nice Little Addition, But Nothing More

Apr.11.12 | About: Danaher Corporation (DHR)

Shares of X-Rite (XRIT) rose an astonishing 38% after Danaher (DHR) proposed to acquire the company for $5.55 per share, valuing the technology company around $478 million.

The deal

Danaher proposed to pay $5.55 per share in an all cash deal valuing X-Rite at $478 million or $625 million including the assumption of debt. The deal represents a 39% premium over Monday's closing price.

Danaher pays a valuation multiple of 2 times annual revenue and 10 times earnings for the technology company focusing on color management services. The price represents a good premium over X-Rite's lows of close to $1 in 2009, but long term holds who bought the stock at $15 per share in 2007 are probably less happy.


Shares of Danaher fell 3.2% Tuesday, representing a drop of $1.2 billion in market value in a general weak market sentiment. Merely a small factor of Tuesday's decline can be attributed to the 39% takeover premium of $130 million, the rest is attributed to the market sentiment.

Danaher operates with roughly $500 million in cash and $5.2 billion in debt according to its latest quarterly filing, for a net debt position of $4.7 billion. With a market value of $36 billion the company is valued at 2.2 times annual revenue and 16-17 times annual earnings. The company pays a mere 0.2% dividend yield.

Investment Thesis

Shares of Danaher trade close to their all time highs of $55 despite Tuesday's drop. The company reported rapid revenue growth over the recent years and saw margins peaking around 14%.

Despite the nice addition with adds about 1% in annual revenues, shares trade at a reasonable multiple with leaves some downside potential given the fact that margins seem to have peaked already.

I remain on the sidelines for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.