Danaher Corp. (NYSE: DHR) announced a definitive agreement with NetScout Systems, Inc. (NASDAQ: NTCT) to combine Danaher's Communications business with NetScout in a tax-free transaction, in a move described by the companies as "creating a premier global provider of network management tools and security solutions for carrier and enterprise customers."
Danaher's Communications business includes the brands of Tektronix Communications, Fluke Networks, and Arbor Networks. Notably, however, the data cabling tools business and carrier service provider tools businesses of Fluke Networks will be excluded from the transaction, according to a press release. These businesses of Fluke Networks will be retained by Danaher.
Danaher's Communications business, excluding the previously mentioned Fluke Networks assets, generated approximately $836 million in revenue for their fiscal year ended December 2013, while NetScout generated approximately $397 million in revenue for their fiscal year ended March 2014. At the closing of the transaction, Danaher shareholders will receive approximately 60% of the issued and outstanding shares of NetScout after giving effect to the transaction. At NetScout's closing price of $41.91 on October 10, 2014, the transaction values Danaher's Communications business at $2.6 billion.
"NetScout's high-performance monitoring technology combined with our premier troubleshooting, cyber security and engineering solutions will create a comprehensive suite of best-in-class solutions in the industry today," commented James A. Lico, Danaher's executive vice president. "The combined company will offer even greater breadth and depth across both carrier and enterprise networks, expanding opportunities for innovation and growth while improving our customers' overall experience with comprehensive software based solutions."
Anil Singhal, co-founder, president, CEO and board chairman of NetScout added, "This combination represents another important step, and major milestone, towards accelerating our ability to compete on a larger and more global scale in the broader IT management and Cyber Intelligence space, to fully implement our NetScout 3.0 strategy, and to maximize our potential in our total addressable market."
Following the completion of the transaction, Mr. Lico will join NetScout's board of directors. In addition, the current NetScout executive team will remain in place at the combined company, including Mr. Singhal.
TRANSACTION DETAILS
Under the terms of the transaction agreement, Danaher will create a wholly-owned subsidiary to hold the Communications business and will distribute ownership of that subsidiary to Danaher shareholders in either a spin-off or split-off transaction, which will be followed by a merger of the Communications subsidiary with a subsidiary of NetScout.
The Communications subsidiary will become a wholly owned subsidiary of NetScout. If Danaher elects a spin-off, all Danaher shareholders would participate pro-rata. If Danaher elects a split-off, Danaher shareholders would have the opportunity to exchange their Danaher shares for shares of the Communications subsidiary. Danaher will determine which approach it will take prior to closing the transaction, and no decision has been made at this time.
In a spin-off, Danaher expects the dilution impact to its net earnings per diluted share would be approximately 2-3% on an annual basis as a result of the distribution, which would likely be more than offset by the value attributable to the NetScout stock provided as consideration for the merger. In a split-off, Danaher expects the impact to net earnings per diluted share would be immaterial, assuming full take-up of the split-off shares.
The transaction is subject to customary closing conditions, including obtaining regulatory and NetScout shareholder approval and the receipt by Danaher of confirmation of the tax treatment of certain matters. Under the terms of the agreement, Mr. Anil Singhal, who currently owns greater than 5% of NetScout's shares, will vote such shares in favor of the combination. The transaction is expected to be tax-free for Danaher and its shareholders and is expected to close in 2015. Until such time, the Communications business will continue to operate separately from NetScout.
Danaher also anticipates adjusted diluted net earnings per share of approximately $0.90 and core revenue growth of approximately 3% for the third quarter 2014.
Danaher's president and CEO, Thomas P. Joyce, Jr., concluded, "We are excited about today's announcement, which is the culmination of a multi-year discussion to work together with NetScout. This is a powerful and unique opportunity to combine highly complementary businesses in a transaction that will benefit all Danaher and NetScout stakeholders, including shareholders, customers and associates. We believe the combined company will be able to enjoy strong growth, drive further innovation and serve our customers in a more comprehensive way."
As previously announced, Danaher will hold its quarterly earnings conference call for the third quarter 2014 on Thursday, October 16, 2014 at 8:00 a.m. ET. The call will be hosted by Anil Singhal; James A. Lico will also participate. The call will be webcast live through NetScout's website at http://ir.netscout.com/phoenix.zhtml?c=92658&p=irol-irhome.
View the full press announcement of this news at CNN Money.
