Medical Device Link.

Originally Published MX January/February 2004

COVER STORY

Consolidation can be a great boon to industry, helping companies to sweep away deadwood and achieve operational efficiencies previously thought unattainable. But that doesn't mean the road to a successful merger is an easy one.

In March 1997, when Dade International announced its plan to merge with the Behring Diagnostics business unit of German-based Hoechst AG, analysts and credit rating firms cast a wary eye on the deal. Dade was already carrying a heavy debt resulting from its leveraged buyout from Baxter International in 1994 and its acquisition of the DuPont clinical analyzer business in 1996.

Led by company chairman, president, and CEO Jim Reid-Anderson, Dade Behring personnel ring the opening bell of the NASDAQ stock market on March 11, 2003. The company's common stock began trading on the NASDAQ exchange in February 2003.

Still, the merger promised to create the world's largest stand-alone IVD company, with annual revenues of nearly $1.5 billion, and it combined the strength of the partners' market presence in both the United States and Europe. Just as important, it prevented the two firms from being swept away by the wave of consolidation that reshaped the IVD industry in 1997.

But things could have gone better. Instead of the growth that was expected to result from the merger, the company encountered faltering revenues, which dropped to less than $1.2 billion in 2000. And meanwhile, the company's interest expenses were rising, hitting nearly $150 million in 2000 and almost as much the following year. By the middle of 2002, Dade Behring's debt had reportedly risen to approximately $1.6 billion, and there were even rumors that the company was on the auction block.

Share prices for Dade Behring since being offered on the over-the-counter bulletin board in September 2002, through November 2003. During 2003, the price of the company's stock more than doubled. (click to enlarge)

It came as little surprise, then, when Dade Behring announced in August 2002 that it would file for Chapter 11 protection while undergoing financial restructuring that would relaunch the company as a public entity. The company's prepackaged filing included a debt-to-equity swap that reduced its debt to $800 million and gave the company an opportunity to regain its footing. But few could have anticipated how well the company would perform during its first year in public ownership. Consider the following metrics.

• Company revenues have begun to rebound, hitting nearly $1.3 billion in 2002 and more than $1 billion during the first three quarters of 2003.
• Operating income, which was negative in 2000, now exceeds $100 million annually.
• As a percentage of sales, Dade Behring's expenditures on R&D have increased from 6 to 9%.
• The company is working hard to reduce its debt load, accelerating its debt payments by $125 million in 2003. After a November prepayment of $50 million, the company's long-term debt is currently about $642 million.
• Dade Behring stock was first offered on the over-the-counter bulletin board in September 2002, at $17. Since then, the company has been listed on the NASDAQ exchange (DADE) and its stock price has almost doubled, rising to nearly $34 at the end of November 2003.

No doubt, scores of other factors may ultimately determine the market success of the revitalized Dade Behring and its products. But if its disciplined performance in 2003 is any indication, the company has what it takes to be a strong market force that will be heard from for years to come.

Copyright ©2004 MX