DaVita to Buy Gambro's U.S. Clinics for $3.1 Billion Dec. 7 (Bloomberg) -- DaVita Inc., the fourth-largest dialysis provider, agreed to buy Gambro AB's U.S. clinics for $3.1 billion in cash to become the kidney-treatment leader in the world's biggest health-care market. Gambro shares soared. DaVita, based in El Segundo, California, will double the number of people using its services to 96,000 patients at more than 1,200 sites in the U.S. The Gambro unit had about $1.8 billion in 2003 sales, the Swedish company said today. Gambro's operations will allow DaVita to overtake Fresenius Medical Care AG of Germany, whose 84,600 U.S. customers make it the largest provider of dialysis, which filters impurities from the blood. Stockholm-based Gambro will focus on devices for blood- and cell-based therapies, including dialysis. "It's certainly a good price and a good deal for both sides," said Ludger Mues, a medical-technology analyst at Sal. Oppenheim who has a "neutral" rating on Gambro. "DaVita believes it can make the business more profitable and Gambro can concentrate on its devices." Shares of Gambro rose 5.5 kronor, or 6.2 percent, to 95 kronor at the close of trading in Stockholm. DaVita shares climbed 90 cents, or 2.4 percent, to $37.72 at 4:15 p.m. in New York Stock Exchange composite trading. Gambro shares have risen 60 percent and DaVita's stock has gained 45 percent this year. DaVita plans to finance the acquisition through a new financing arrangement and by issuing notes, it said in a PR Newswire statement. J.P. Morgan Chase & Co., its financial adviser, has committed financing for the transaction, it said. McDermott Will & Emery LLP and Bingham McCutchen LLP were DaVita's legal counsel. Goldman Sachs Group Inc. advised Gambro. Industry Probes The U.S. company expects the acquisition to cut into its earnings in the first year, have no effect in the second quarter and add to earnings in the third year after the purchase. Earlier this year, Gambro, DaVita, Fresenius Medical and Renal Care Group Inc. got subpoenas from U.S. prosecutors in an industrywide probe of practices involved in testing kidney patients' hormone levels. Last week, Gambro said it reached a final settlement in a different U.S. investigation. Gambro, which began mass production of single-use artificial kidneys and dialysis machines in 1967, agreed to supply DaVita with renal products for at least 10 years and jointly develop dialysis products. "It clearly makes sense for Gambro," Mues said. "They are the preferred product partner for Davita for the next 10 years. This is Gambro's most profitable business and they get really a good price for the U.S. business." 43,200 Patients DaVita and Gambro expect to complete the transaction in the first half of 2005. The acquisition will add about 43,200 patients in 565 dialysis centers to DaVita's operations. After completion DaVita will have combined sales of about $4.4 billion. Gambro, today the world's No. 2 operator of dialysis centers, had about $1.9 billion in sales at its continuing operations in 2003 and will employ about 11,000 people. The sale will result in a pretax capital gain of $1.2 billion and net debt will become a cash surplus of about $2 billion. The Wallenberg family is Gambro's largest shareholder. "The question is what they're going to do with the money," said Anders Evander, chief investment officer at Alfred Berg in Stockholm, a unit of ABN Amro NV that manages the equivalent of about $12 billion. "They have to make acquisitions or hand it out to shareholders. It would be fun if they would grow and become big again. There's not one obvious solution to the excess cash." Settlements Earlier this month, Gambro reached a final agreement with the U.S. Justice Department after a probe into its billing practices. It set aside 2.7 billion kronor ($410 million) in July when it reached a tentative agreement with the U.S. Gambro staff will receive more training in billing and coding practices during the next five years as part of the settlement. Gambro will have three business units: Gambro Healthcare, which provides dialysis services outside the U.S.; Renal Products, which makes dialysis products; and BCT, which provides blood collection services. Shares of Gambro were suspended yesterday after the Wall Street Journal reported the companies were close to an agreement.2.7 Peter Grauer, chairman of Bloomberg LP, has been on the board of DaVita since 1994. I go to a DaVita dialysis unit but have a Gambro doctor. I just love DaVita :)