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ACQUISITIONS AND OTHER ARRANGEMENTS | 9 Months Ended
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Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS AND OTHER ARRANGEMENTS | ACQUISITIONS AND OTHER ARRANGEMENTS Proposed Acquisition of Hillrom On September 2, 2021, we announced that we have entered into a definitive agreement to acquire all of the outstanding equity interests of Hill-Rom Holdings, Inc. (Hillrom) for total cash consideration of approximately $10.5 billion. Including the assumption of Hillrom's outstanding debt obligations, the enterprise value of the transaction will be approximately $12.4 billion. Under the terms of the transaction agreement, Hillrom shareholders will receive $156.00 in cash for each Hillrom share. The transaction is expected to close in early 2022, subject to the approval of Hillrom shareholders a nd the satisfaction of customary closing conditions, including regulatory approvals. Hillrom is a global medical technology leader whose products and services help enable earlier diagnosis and treatment, optimize surgical efficiency, and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. Hillrom makes those outcomes possible through digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care. In connection with the proposed acquisition of Hillrom, on September 1, 2021, we entered into a bridge facility commitment letter with JPMorgan Chase Bank, N.A. (JP Morgan) and Citigroup Global Markets Inc. (Citi) pursuant to which JP Morgan and Citi have committed to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of $11.4 billion (the Bridge Facility) for the purpose of funding the consideration for the Hillrom acquisition, refinancing certain indebtedness of Hillrom, and paying fees and expenses related to the foregoing. Loans under the Bridge Facility will bear interest at variable rates, will be due 364 days after the loan is issued and contain various covenants, including a maximum net leverage ratio. The Bridge Facility included upfront fees of $40 million that will increase to $53 million if the Bridge Facility is not terminated within 120 days of the date the Bridge Facility was executed. The commitments in respect of the Bridge Facility were syndicated to additional financial institutions on September 30, 2021. Undrawn commitments in respect of the Bridge Facility will be subject to a ticking fee commencing on the later of (x) the date that definitive documentation with respect to the Bridge Facility is executed and (y) November 30, 2021 at a rate per annum equal to 0.125%. Loans under the Bridge Facility, if funded, will bear interest at variable rates, will be due 364 days after the initial funding of such loans and contain various covenants, including a maximum net leverage ratio. In addition, loans drawn under the Bridge Facility will be subject to a duration fee equal to (i) 0.5% of the outstanding loans on the 90 th day after the initial funding of such loans, (ii) 0.75% of the outstanding loans on the 180 th day after the initial funding of such loans and (iii) 1% of the outstanding loans on the 270 th day after the initial funding of such loans. On September 30, 2021, we entered into a term loan credit agreement (the Term Loan Credit Agreement), pursuant to which a syndicate of financial institutions has committed to provide us with a senior unsecured term loan facility in an aggregate principal amount of $4.0 billion (the Term Loan Facility), consisting of a $2.0 billion three-year term loan and a $2.0 billion five-year term loan. Loans under the Term Loan Facility will be available on the closing date of the Hillrom acquisition to fund the consideration for the Hillrom acquisition, refinance certain indebtedness of Hillrom, and pay fees and expenses related to the foregoing. Loans under the Term Loan Facility will bear interest at variable rates, will be subject to amortization at an annual rate of 0.625% for the first year and 1.25% thereafter (with loans outstanding under the five-year tranche subject to amortization at an annual rate of 1.875% after the second anniversary of the commencement of amortization and 2.500% after the third anniversary of the commencement of amortization). The Term Loan Credit Agreement contains various covenants, including a maximum net leverage ratio. Undrawn commitments under the Term Loan Facility are subject to a ticking fee commencing on November 30, 2021 at a rate per annum equal to 0.125%. The aggregate principal amount of the commitments under the Term Loan Facility have replaced a corresponding amount under the commitment letter in respect of the Bridge Facility, in accordance with the terms of the commitment letter. As a result, there are now $7.4 billion in bridge facility commitments remaining. We expect to replace these remaining commitments with cash on the balance sheet and/or permanent financing in the form of the issuance of debt securities prior to the closing of the proposed acquisition of Hillrom. Transderm Scop In March 2021, we acquired the rights to Transderm Scop (TDS) for the U.S. and specified territories outside of the U.S. from subsidiaries of GlaxoSmithKline for an upfront purchase price of $60 million including the cost of acquired inventory and the potential for additional cash consideration of $30 million, which had an acquisition-date fair value of $24 million, based upon regulatory approval of a new contract manufacturer by a specified date. We previously sold this product under a distribution license to the U.S. institutional market. TDS is indicated for post-operative nausea and vomiting in the U.S. and motion sickness in European markets. W e concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair value of the potential contingent consideration payment was estimated by applying a probability- weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value. The following table summarizes the fair value of the consideration transferred:
(in millions) |
Cash | $ | 60 |
Contingent Consideration | 24 |
Total Consideration | $ | 84 |
The following table summarizes the fair value of the assets acquired as of the acquisition date:
(in millions) |
Assets acquired |
Inventory | $ | 16 |
Goodwill | 1 |
Other intangible assets | 67 |
Total assets acquired | $ | 84 |
The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the three and nine months ended September 30, 2021. We allocated $64 million of the total consideration to the TDS developed product rights with an estimated useful life of 9 years and $3 million to customer relationships with an estimated useful life of 7 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 22.5% for developed product rights and 15.5% for customer relationships. We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values. The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our pharmaceutical portfolio and is included in the Americas segment. PerClot In July 2021, we acquired certain assets related to PerClot Polysaccharide Hemostatic System (PerClot), including distribution rights for the U.S. and specified territories outside of the U.S., from CryoLife, Inc. for an upfront purchase price of $25 million and the potential for additional cash consideration of up to $36 million, which had an acquisition-date fair value of $28 million, based upon regulatory and commercial milestones. PerClot is an absorbable powder hemostat indicated for use in surgical procedures, including cardiac, vascular, orthopedic, spinal, neurological, gynecological, ENT and trauma surgery as an adjunct hemostat when control of bleeding from capillary, venous, or arteriolar vessels by pressure, ligature, and other conventional means is either ineffective or impractical. PerClot is approved for distribution in the European Union and other markets and is expected to be submitted for Pre-Market Approval (PMA) for distribution in the U.S. in the fourth quarter of 2021. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair values of the potential contingent consideration payments were estimated by applying probability-weighted expected payment models and are Level 3 fair value measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values. The following table summarizes the fair value of the consideration transferred:
(in millions) |
Cash | $ | 25 |
Contingent Consideration | 28 |
Total Consideration | $ | 53 |
The following table summarizes the fair value of the assets acquired as of the acquisition date:
(in millions) |
Assets acquired |
Goodwill | $ | 4 |
Other intangible assets | $ | 49 |
Total assets acquired | $ | 53 |
The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates. The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the three and nine months ended September 30, 2021. We allocated $39 million of the total consideration to an in-process research and development (IPR&D) asset with an indefinite useful life, $9 million to the approved PerClot developed product rights with an estimated useful life of 10 years and $1 million to customer relationships with an estimated useful life of 10 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 18.7% for IPR&D, 16.0% for developed product rights and 15.0% for customer relationships. We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values. The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our surgical portfolio of hemostats and sealants and is included in the Americas and EMEA segments. We have not presented pro forma financial information for either of the 2021 business combinations because their results are not material to our consolidated financial statements. Caelyx and Doxil In February 2021, we acquired the rights to Caelyx and Doxil, the branded versions of liposomal doxorubicin, from a subsidiary of Johnson & Johnson for specified territories outside of the U.S. We previously acquired the U.S. rights to this product in 2019. Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer. The transaction was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in the developed technology intangible asset. The purchase price of $325 million was allocated to the assets acquired, which included a $314 million developed-technology intangible asset with an estimated useful life of 9 years and an $11 million customer relationship intangible asset with an estimated useful life of 8 years. Net sales related to this acquisition were $32 million and $73 million, respectively, for the three and nine months ended September 30, 2021.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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