Baxter May End Spat By Buying Fresenius

Baxter May End Spat By Buying Fresenius

James McKeigue, 04.18.08, 1:35 PM ET
FORBES

LONDON -

If you can't beat 'em, buy 'em. American medical products maker Baxter International is reportedly ready to make a bid for German kidney dialysis provider Fresenius Medical Care after several years of litigation between the two companies.

They first butted legal horns in 2006, when Baxter International applied for a court order to uphold a patent that would prevent Fresenius Medical Care from selling a popular kidney dialysis machine in the United States.

The latest round went to Baxter, with a trial court overruling previous decisions and awarding Baxter $14.3 million in damages. FMC plans to appeal to the U.S. Court of Appeals, hoping to win reinstatement of the original jury verdict that Baxter's patent claims were invalid. (See: "Fresenius To Appeal Patent Violation Case")

Buying FMC, the world's biggest supplier of kidney dialysis machines, would be one way for Baxter to settle the case--it would also significantly strengthen its market position in kidney dialysis machines.

"If Baxter bought FMC, it would be a major step forward," said Westlb Research analyst Oliver Kammerer.

Shares in FMC shot up 5.04% to 32.75 euros ($51.52) in late afternoon trading in Frankfurt as traders reacted to the rumors. FMC is also attractive because 21% of its sales come from Europe, but it lists its results in dollars. As the euro strengthens, its euro sales become more profitable when translated into dollars. (See: "Fresenius Benefits From U.S. Kidney Troubles")

Baxter shares were up 1.4%, or 85 cents, to $61.25, benefiting from Thursday's better than expected first-quarter results. It overcame the adverse publicity surrounding the recall of the blood thinner Heparin to post a 6% rise in quarterly profit on cost cutting and higher returns on overseas sales due to the weakening greenback.

However, one stumbling block to the takeover is that parent company Fresenius holds a 40% stake in FMC, a minority blocking stake that allows it to prevent a full takeover.

"Any speculation on a takeover revolves around the stake of the parent company," said Kammerer. "If they were to sell their stake, it would go for somewhere in the region of $4.4 billion. They would not agree to the sale unless they had a definite strategy for such a cash windfall."

http://www.forbes.com/2008/04/18/fresenius-medical-care-markets-equity-cx_jm_0418markets15_print.html