Good morning, ladies and gentlemen, and welcome to the Baxter International Investor Call to discuss the proposed acquisition of Hillrom. Your lines will remain in listen-only mode until the question and answer segment of today's call. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be re-recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Clare Trachtman, Vice President, Investor Relations at Baxter International. Ms. Trachtman, you may begin.
Good morning, everyone, and thank you for joining us. We are very pleased to announce Baxter's proposed acquisition of Hillrom. Joining me today are José E. Almeida, Baxter's Chairman and Chief Executive Officer, John P. Groetelaars, Hillrom's President and Chief Executive Officer, as well as Jay Saccaro, Baxter's Chief Financial Officer. In addition, joining us on the call today is Giuseppe Accogli, Senior Vice President and President of Americas and Global Business Unit. Giuseppe will be leading the integration of Hillrom into the Baxter business. On today's call, we will walk you through the strategic rationale behind this exciting acquisition and how this transaction enhances our scale and breadth across the continuum of care and care settings, accelerates our own digital transformation, and unlocks additional value for all stakeholders. We will then open up the call for Q&A.
A supplemental presentation to complement this morning's discussion can be accessed on our website in the investor section under Events and News. As you know, we had planned to host Baxter's investor conference in late September. Given this pending transaction, we are going to postpone our investor conference until after the closing so that we can provide you with a detailed look at the combined company's strategy and financial outlook. We recognize that investors have been waiting for a new long-term outlook from Baxter. Jay will share our expectation for Baxter's standalone financial outlook from 2021 through 2024 later in this call. We intend to provide a more complete outlook at our investor conference post the closing of this combination, which is subject to the approval of Hillrom shareholders and the satisfaction of other customary closing conditions, including regulatory approval.
Let me start our prepared remarks by reminding everyone that this presentation, including comments regarding the proposed acquisition, including anticipated synergies and net leverage targets for the combined companies, our standalone financial outlook, business development activities, capital structure, new product developments, and other regulatory matters contain forward-looking statements that involve risks and uncertainties. Of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more details concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's performance and standalone financial outlook as well as certain combined company pro forma measures. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures, where practical, is included in our release issued this morning and available on our website.
Before I turn the call over to José E. Almeida, I would like to point out that our prepared remarks will track with the announcement presentation available on our investor relations website. Now, I'd like to turn the call over to Joe . Joe?
Thank you, Clare, good morning, everyone. Today is a major milestone in Baxter's 90-year history, bringing together two leading global medical technology innovators in a very compelling combination that significantly advances our strategy, digital capabilities, and vision to transform healthcare. Hillrom brings a highly complementary product portfolio and innovation pipeline that will enable Baxter to provide a broader array of medical products and services to patients and clinicians across the care continuum and around the world. Together, we will facilitate the delivery of healthcare that is patient and customer-centered and focused on improving clinical outcomes. The acquisition should also accelerate the company's expansion into digital and Connected Care solutions that are increasingly enabling patients to access hospital-level care at home or in another care setting.
Baxter and Hillrom are uniting to meet the challenges of a rapidly evolving global healthcare landscape while also creating significant value for all the stakeholders we serve. We're very excited to welcome the Hillrom team to Baxter and join together to advance our mission to save and sustain lives. Before we get into the details of this transaction and the value we expect it will create, I want to provide a brief overview of Baxter and the journey we've been on as a company. As you can see on slide six, Baxter is a global, diversified, leading healthcare company. We have a presence in over 100 countries, serving over 75 million patients annually, and our seven core businesses represent a diversified portfolio of medically necessary products and therapies with revenues of $11.7 billion in 2020.
The benefits of this diversification, the durability of our portfolio, and the dedication of our 50,000 employees worldwide have been on display amid the challenging conditions posed by the COVID-19 pandemic. Baxter competes in large global categories totaling over $100 billion today. We estimate that our Weighted Average Market Growth Rate is approximately 3% across these product categories. Over the past three years, we've demonstrated an ability to exceed our Weighted Average Market Growth Rates through the introduction of innovative new products, increased adoption of our differentiated therapies, and geographic expansion. Our performance has been fueled by our investments in innovation and augmented by our digital transformation efforts, which began over one year ago.
We've spoken before about three transformation pillars, digital health, digital customer experience, and digital core, and how we expect these efforts will help to unlock revenue opportunities, drive higher customer loyalty, and enable a more efficient company-wide operating model. On slide seven, you can see an overview of the transformation journey we've been on as a company since I joined Baxter in 2016. Our initial focus was on improving quality controls, optimizing the cost structure, and upgrading our talent. We established a more focused business unit structure with each leader developing a clear vision in a 10-year innovation roadmap and implemented regional go-to-market strategies to help drive accountability and keep focused on innovation. We saw tremendous progress in strengthening our financial position.
In the next phase of our journey, we shift the focus to creating an innovation ecosystem, investing in new product development, and looking for opportunities to accelerate top-line growth and reallocate resources. We reorganized our research and development functions from a centralized model to a more decentralized and cost-effective structure. This resulted in our development teams focusing on innovative products that would better meet the needs of our customers and shift our resources to more value-added new product development. We also refined our corporate strategy and executed on a series of smaller tuck-in acquisitions. Some tuck-ins helped fill portfolio gaps to strengthen our product positioning, and others augmented our technological capabilities, positioning us for the next leg of our transformation journey.
As we reflect on the trends shaping the global healthcare landscape and the speed by which they have been brought to the forefront as a result of the pandemic, it has become clear that the next step of our journey must be focused on moving from being a products company to a solutions partner to drive efficiencies for our customers and enhance clinical outcomes for our patients. We have an intensified focus on entering complementary spaces through organic innovation and business development. We had a vision of where we wanted to go as a company, and a combination with Hillrom, along with its Connected Care capabilities, will help accelerate this transformation by delivering robust healthcare solutions across the continuum of care and in new care settings. As Clare mentioned, I'm very pleased to be joined by John Groetelaars today.
John has led the business transformation at Hillrom over the last several years to create a very exciting company that we will be acquiring. I wanted to provide John with an opportunity to share his insights into the strength of the Hillrom portfolio today, the growth opportunities the company is capitalizing upon, and the rapid growth of its Connected Care business. John, I will turn it over to you.
Thank you, Joe. I'm really pleased to be here with you, Jay, and other attendees on the call this morning. Today represents a major milestone for Hillrom, our shareholders, our employees, and perhaps most importantly, patients and their caregivers. I'm excited about the combination with Baxter and what we expect to achieve together. Let's begin with how we got here. As Joe highlighted, our business has undergone a significant transformation over the last five years. We've made key investments to establish Hillrom as a medical technology leader with a global portfolio focused on higher growth segments and innovative healthcare solutions, advancing our category leadership strategy. As we look at Hillrom today, we have three critical businesses, Patient Support Systems, Front Line Care, and Surgical Solutions, which generated approximately $3 billion of revenue in 2020.
We have a strong presence in the acute, ambulatory, or physician office setting, and in the home with well-established brands like Hillrom, Welch Allyn, and Voalte, to name a few. More recently, we analyzed, identified, and increased investments across six growth platforms that you see in the middle of this slide. As you can see, our portfolio is diverse and is part of a $40 billion TAM with expected growth of approximately 5% over the next three years. New product innovation is also a key growth driver at Hillrom. Our R&D pipeline is more robust than ever as we continue to shift towards higher value connected offerings. For fiscal 2021, we remain on track to exceed our objective of $620 million in new product revenue and have met our goal of launching 10 new products this year.
As the average time to peak revenue is three to four years, we expect these recent launches to fuel top-line growth in the years to come. Since I joined Hillrom, we've accelerated our transformational journey. We put in place a number of foundational elements, including our Connected Care vision. Hillrom is making excellent progress with our Connected Care solutions, with products that span across all three businesses, including our care communications platforms, connected monitoring devices, intelligent diagnostics, and connected devices and software for the operating room. As highlighted here, we expect to end 2021 with Connected Care revenue representing nearly one-third of Hillrom's total revenue and expect to realize growth of more than 20% from our Connected Care portfolio this year. On the right side of this slide, this chart highlights Hillrom's revenue mix shift over the last 10 years, reflecting our transformation from another perspective.
As you can see, given both our organic and inorganic investments, we've created a more durable, diversified portfolio with approximately 65% of our 2020 revenue derived from recurring and non-capital purchases. While capital revenue has been significantly reduced and represented only about 35% of our 2020 revenue. Looking forward, I feel strongly that our combination with Baxter is the right next step to advance our own strategy to transform healthcare. Baxter is a company that we've long admired with values that are very consistent with our own. This includes a shared priority on creating cultures of diversity, inclusion, equity, and belonging, and a commitment to accountability with a long history of serving patients and caregivers. Together, we'll be poised to meet the needs of an evolving healthcare landscape with complementary product offerings that will help enhance outcomes for patients and their caregivers across the continuum of care.
For Hillrom shareholders, the transaction will deliver immediate and compelling cash value upon closing, and for our employees, it offers the opportunity to become part of a larger organization with greater scale, resources, and growth opportunities. Together with Baxter, we remain committed to continuing to increase our presence and strengthening our durable growth with new product momentum, international and emerging market growth, and portfolio investment. I look forward to working with the Baxter team to ensure a smooth transition as we work to complete the transaction. With that, I'd like to turn the call back over to Joe.
Thanks, John. Moving on to slide 10, let me bring us back to why we're so excited about this combination. We are combining two leading companies with a shared vision to transform healthcare by improving efficiencies in clinical outcomes and driving actionable insights across the care continuum in care settings. The company's combined capabilities in therapeutic delivery, monitoring, blood purification, diagnostics, and communications for patients and caregivers will enhance opportunities for truly Connected Care. We believe this can drive better patient outcomes, improve workflow efficiencies and data-driven insights, and potentially lower healthcare costs overall. It is also an outstanding opportunity to further extend both companies into additional non-acute sites of care. The transaction provides a meaningful opportunity to build upon Baxter's established global infrastructure to grow Hillrom's international business and offer a broader portfolio of complementary products and services to more patients and providers worldwide.
The combination also unites two organizations that have each been recognized for achievements in workplace diversity, in corporate responsibility, and for fostering an environment that supports and encourages high performance, respect for individuals, and professional growth. This is a transformational move for Baxter shareholders, with the significant potential to accelerate revenue growth through opportunities created by our combined offering, Connected Care capabilities, and expanded reach of the Hillrom portfolio. We also believe the cost synergy opportunity is substantial, and I have a high degree of confidence in our ability to realize these savings based on our track record over the last five years plus . Although we expect this transaction to drive meaningful accretion and robust cash flows, resulting in a high single-digit return on invested capital by year five. I've spoken about our shared vision to transform healthcare.
Slide 11 highlights the overlay of our combined product offerings across capabilities and care settings and the logic of our integrated offerings from diagnostics, therapy delivery, monitoring, and connected care communications platform. Let me focus on the presence in the hospital setting to describe the offering. With this combination, we have all the pieces to offer a complete end-to-end solution system connecting diagnosis, therapy, and monitoring, including medication delivery solutions and acute renal therapy. Hillrom's smart surfaces connectivity and monitoring. For the patient, this can result in better clinical outcomes. In the ICU, for example, leveraging Baxter and Hillrom smart devices and connected data, our goal will be to drive better patient outcomes in controlling patient fluid balance, which can lead to better clinical outcomes and shorter patient length of stay. For the provider, this means potentially enhanced patient safety and cost savings.
We can provide a better ability to anticipate issues in patient care, to deliver optimal care, and reduce the length of patient stays with a robust clinical intelligence platform that connects wirelessly to the electronic medical record systems of hospitals. Furthermore, increased workflow efficiencies and reduced waste will be a central component of innovation to save providers resources and time. For Baxter, this represents an opportunity to provide a holistic, broad patient management beyond individual therapy uses cases through the connection of data across our combined portfolio of devices. Overall, we expect this to lead to an even stronger relationship with providers and patients that grows more valuable with time. In the home, we expect to see similar dynamics as our complementary portfolio across diagnostics, therapy management, remote patient monitoring, and Connected Care can help shape the future of hospital at home.
Our vision for the hospital-level care in the lower cost home care setting with better feedback and data-driven decision making. Collectively, we can become a comprehensive solution partner to our customers, driving value across the care continuum and across care settings, leveraging competencies of diagnostics, monitoring, and Connected Care while expanding the global reach of our complementary portfolios and improving clinical outcomes and workflow efficiencies. Turning to slide 12. Baxter has a long track record of expanding our international footprint. In 2020, Baxter generated nearly 60% of our sales outside the U.S. with a significant OUS direct sales force. Over one-third of those international sales are coming from rapidly growing emerging markets. We have invested significantly in this commercial footprint and in our manufacturing operations overseas. Our regional teams have developed strong commercial relationships with our customers throughout the globe.
Hillrom's international business represented approximately one-third of its total revenue for its 2020 fiscal year, with a portion sold through distributors. The combination provides a significant opportunity to build upon Baxter's established global infrastructure to grow Hillrom's international presence, particularly within the emerging markets and the potential to drive upside by bringing Hillrom's existing distributor sales under Baxter's direct sales model. We believe the value of our combined offering will be significant to our shared customers and feel that over the medium term, this represents a compelling opportunity for us. The newly combined company, we also have a competitive edge in the talent marketplace, which has never been more crucial. Baxter's life-saving mission resonates deeply with employees, and this commitment will be further fueled by adding the strong capabilities and talents of employees from Hillrom.
Our employees will engage on the front lines to realize our vision to transform the healthcare landscape through innovation across our product lines, as well as how we operate. Both Baxter and Hillrom have each been recognized as a best place to work and top employer. Our shared emphasis on ethics and compliance, racial justice, sustainability, and the health and safety of our employees distinguishes us as an employer of choice and suggests the power and potential of our united employment brand. I will now turn it over to Jay to walk you through the financial rationale for this transaction, as well as our long-term outlook for Baxter on a standalone basis.
Thanks, Joe. Turning to slide 14. We've spoken many times that we have both strategic and financial criteria that must be met for us to execute on the transaction. The combination with Hillrom clearly meets those two stated objectives. Joe has just walked you through the strong strategic rationale for this combination. Now I'll walk you through the financials and meaningful opportunity we have for value creation presented by this deal. On a pro forma basis for 2020, the combined companies would have generated approximately $14.6 billion in revenue, $3.3 billion in Adjusted EBITDA, and $1.6 billion in free cash flow. As Joe referenced earlier, the beginning of Baxter's transformation journey was focused on optimizing our cost structure and implementing disciplined financial management practices throughout the organization.
The benefits of this were realized in the substantial adjusted operating margin expansion we achieved, going from approximately 9% in 2015 to 18% last year. We plan to execute on a similar playbook to enhance margins as a combined company and expect to achieve approximately $250 million in cost synergies by year three post-close, with additional opportunities thereafter. Baxter remains committed to investment-grade credit ratings and generating strong, sustainable cash flow. We will fund the deal with a fully committed debt financing bridge, bringing our net leverage to around 4.2 x net debt to last 12 months pro forma Adjusted EBITDA at closing. Our initial capital allocation priority post-close will be to aggressively de-lever through the first two years to reach our net leverage target of 2.75 times by year two post-close. As Clare mentioned, we will be postponing our investor conference originally scheduled for this September.
In light of this, we are providing a three-year outlook covering 2021-2024 for Baxter as a standalone company, as seen on slide 15. A couple of points to note. The standalone guidance for Baxter does not reflect any impact from the proposed transaction, and our assumptions assume a stable macroeconomic environment. On a standalone basis, we expect a three-year sales compounded annual growth rate, or CAGR, of 4%-5%, based on current foreign exchange rates. We expect to expand adjusted operating margin by at least 50 basis points annually, resulting in an improvement of 300 basis points or more from 2021-2024. This expansion is driven primarily by improvements within adjusted gross margin from our integrated supply chain transformation efforts and improved product mix. We expect this will drive a low double-digit CAGR for adjusted diluted earnings per share over that time period.
Lastly, we remain committed to strong cash flow generation and anticipate generating 80%+ free cash flow conversion over the next three years. As mentioned, this outlook does not assume any impact from the proposed transaction, which we anticipate will enhance our ability to expand margins more meaningfully over the next three years and drive an accelerated earnings growth CAGR. We plan to host an investor conference post the closing of the transaction to provide details on the combined company strategy, pipeline, and financial outlook, inclusive of potential revenue expansion opportunities that we will look to identify to accelerate revenue growth. Moving on to slide 16. As part of the transaction, Baxter will acquire 100% of the outstanding shares of Hillrom. Hillrom shareholders will receive $156 per share in cash. This represents an equity value of $10.5 billion and enterprise value of $12.4 billion.
The transaction price of $156 per share reflects a 26% premium over Hillrom's unaffected closing stock price on July 27th, 2021. In addition to this, Baxter expects to assume $2.1 billion in Hillrom debt and approximately $200 million of its cash upon closing. To fund the transaction, we have a fully committed $11.4 billion bridge facility in place, and we currently expect to replace the bridge facility prior to the closing date with permanent debt financing. We expect this transaction to close in early 2022, subject to Hillrom shareholder approval and satisfaction of customary closing conditions, including regulatory approvals. Turning to slide 17. We believe this combination creates a number of opportunities for potential revenue growth acceleration, which we will continue to evaluate during the integration planning period. It will also provide a much stronger and more diversified platform for long-term growth.
As Joe stated earlier, Hillrom's Weighted Average Market Growth Rate is approximately 5%, which is in excess of Baxter's WAMAGR. With the acquisition, we will be focused on identifying opportunities to expand our presence in the faster-growing categories in which Hillrom participates. Over time, we believe this will drive accelerated growth for our company. While our focus will be on preserving and accelerating the business, we will also expect to deliver cost synergies of at least $250 million by year three, with additional opportunities thereafter as we continue to integrate the business. These cost synergies will be generated primarily from back-office optimization, manufacturing and supply chain infrastructure, and certain other G&A savings, such as eliminating redundant company costs. We believe the realization of these synergies is straightforward, and our track record provides confidence in our ability to achieve these targets.
Importantly, we are committed to achieving them while minimizing business disruption and preserving our combined existing customer relationships. We believe this transaction is very attractive for Baxter shareholders, delivering low double-digit adjusted EPS accretion in the first year post-close, expanding to 20% or more accretion by year three and beyond. The transaction is also expected to generate strong cash flow and deliver a high single-digit return on invested capital by year five. Looking beyond the P&L, the combination will result in the combined company with significant free cash flow to manage the balance sheet and provide more opportunities for capital deployment over the longer term. Our capital allocation priorities as a combined company include aggressive plans to de-lever over the next two years to achieve the pro forma net leverage targets I previously laid out.
We plan to continue our dividend payment but expect to moderate share repurchases in the near term to accomplish this goal. On slide 18, I'd like to spend a moment reviewing our integration plans. In a sizable acquisition like this, the success of the integration is of critical importance. Our focus will be on preserving and accelerating the growth drivers behind this transaction while streamlining and creating efficiencies to generate additional value and ensuring our commercial teams remain focused on providing the high level of service our customers expect from both companies. Consequently, we have established a comprehensive plan that builds upon our experience over the last five years, incorporating newly developed digital competencies with a relentless focus on people, process, and technology.
Upon closing, the Hillrom business will be incorporated into new or existing product categories within Baxter, though we expect Hillrom's Connected Care capabilities will be utilized across the Baxter product portfolio. As Clare mentioned, the integration of Hillrom will be led by Giuseppe Accogli, a seasoned executive who will have the support of senior leaders from all parts of our organization. This team will be made up of leaders from both Baxter and Hillrom and will be accountable for delivering on the commitments made to our shareholders, employees, customers, and patients. With that, I'll turn it back over to Joe. Joe?
In sum, we believe the rationale for the deal is clear. It is in the compelling added value we are creating for our entire stakeholder base with opportunities to serve these constituencies more effectively than either Baxter or Hillrom can currently accomplish separately. Patients and healthcare providers will have access to a vastly more robust portfolio with associated impact, economies, and simplicity. Our united team will also be positioned to accelerate the benefits of our digital transformation and the far-reaching potential of Connected Care to deliver rich insights and enhanced functionality, leading to improved outcomes. We will expand our reach, driving greater access to industry-leading technologies and therapies. Employees will experience the opportunities that come with increased breadth of our portfolio, pipeline, and access.
Our digital transformation will keep them at the leading edge of Connected Care, and they will continue to experience the culture of which we are known, firmly rooted in inclusion, compliance, corporate responsibility, and our embrace of racial justice. For our shareholders, we will be intensely focused on delivering the enhanced return on investment that comes with our newfound potential. We're confident that our opportunities, from a value-added pipeline to robust cost synergies, will spur meaningful growth on both the top line and bottom line to benefit investors. As always, at Baxter, all of our motivations and actions, all of our strategies and tactics are in service of one simple mission: Save and sustain lives. The acquisition of Hillrom creates exciting new opportunities to expand our impact, touch lives, and make a difference around the world.
When we do this right, with an uncompromising focus on patient safety and quality, by fueling growth through the power of innovation, by ensuring a best place to work and rewarding prospects for top industry talent, all of our stakeholders benefit. With that, we're opening to Q&A.
I would like to remind participants that the call is being recorded and a digital replay will be available on Baxter International website through March 1st, 2022 at www.baxter.com. Our first question comes from the line of Vijay Kumar at Evercore ISI.
Hey, guys. Congrats on the transaction, and thank you for taking my question. Maybe, Joe, big picture question for you on the transaction. I think investors have been waiting for Baxter to do something on the strategic front for a while. As you scour the landscape, maybe just walk us through why Hillrom was the right deal. It looks like Connected Care seems to be a big part of the thesis here. I'm not so familiar with Connected Care, so maybe explain to us what it does to Baxter, Hillrom pro forma outlook.
Vijay, good morning. Good morning, folks. As we have spoken in the past, we continue looking to augment and optimize our portfolio. It's all about the right deal at the right time. For me, it's all about the timing. We had very specific discussions about the strategic fit of any acquisition and the financial returns of those acquisitions or potential acquisitions. We were not here at Baxter with a playbook that said, "We've got to do this to be able to do that." It was not a direct correlation. We had, and we explained, if I'm not mistaken, I thought it was page seven of the presentation, our journey to make sure this company is shored up its innovation, shored up its financial position, and had the ability, talent-wise, to take this. The time has coincided with us being ready to do it.
The second thing is, as I said and I've been saying for a while, we want to go where the puck is going, not where the puck is today. We like the businesses that we have. Although we evaluate our portfolio consistently, we have found that digital health with acceleration of COVID has become a really big focus for us. We see the need for a better share source. We see the need for the data from the pumps to communicate with our Starling monitoring from the Cheetah acquisition. How do we bring this to life faster with insights for the clinicians in the future? That's why we thought what John and the team at Hillrom has done in the last three years had accelerated that. They were able to prove that they had the capabilities to accelerate those revenues.
In bringing together that portfolio with Baxter will allow us to not only bring synergies to the table, but also potentially look acceleration of revenues. Remember, their WAMAGR is higher than ours going forward, so it's a positive for the company overall. I would say that we feel ready for an acquisition. Our teams are excited. We have our integration management office ready to go. We hope that we can close as planned.
Thank you, Joe. Maybe one for Jay. Jay, the numbers here are compelling. Over 20% earnings accretion by year three, high singles ROI. Can you remind us on what kind of financing assumptions you have in the model? It looks like about 3%. I want to make sure that's the right assumption. Your standalone 10% earnings growth, did that assume any capital deployment, and does that change with the deal? Thank you.
Sure. There's a lot in there. Obviously, we're incredibly excited about the transaction on a number of levels, inclusive of the financial criteria. You pointed to a couple of components of that. I think more than that, buying a great company with great people and integrating that organization into Baxter, I think is a real phenomenal opportunity. Furthermore, as we talk about the opportunity to transform healthcare, these potential revenue opportunities, we're really excited to identify and work on those and also start to share those with you once the transaction's closed. Having said all of that from a financing standpoint, we are assuming around 3% in terms of overall financing costs. We've set up a structure which allows for rapid paydown. There's going to be a term loan component of this, along with some longer-dated tenors. Those are elements that are in play.
We'll finalize that as we approach the transaction closure, certainly there's a large component of this which we can pay down in a short period of time, which I think gives us an appropriate amount of flexibility. As we think about the standalone business case, it was really important for us to share with you what we think Baxter can do standalone. We did that because we are canceling the Investor Day. What I'll say is we expect to close the transaction along the lines of what we've guided. That outlook will be outdated upon closure of the transaction. As far as the EPS growth, there is some share buyback included on the bottom line. We have some share buyback that's included, but not significant. It's more about offsetting dilution than anything else.
As we think about capital priorities, post-closing, we're adding a lot of debt to the company, and we are going to rapidly pay that down. The reason that we're doing that is it's important for our company to have a solid investment-grade credit rating. It's something that we at Baxter, it's served us incredibly well over our 90-year history. Having that investment-grade credit rating is something we're very focused on. The priority in the short term is paying down that debt. What that means is we will moderate down share buyback, and we will sort of moderate down increases to the dividend. We won't reduce the dividend. Obviously, that's an important part of our overall return of capital to shareholders, but we will moderate down the growth of the dividend. Those are a few component pieces of how we're thinking about capital allocation post-closing.
Thank you, guys.
Your next question will come from the line of Robbie Marcus at JPMorgan. Your question, please.
Oh, great. Thanks for taking the question. I'm unfortunately unable to ask about the deal itself, but there was a lot in here, Jay and Joe, I'd like to just touch on standalone Baxter as it helps inform our models going forward. I know you said it gets voided once the deal is closed, but I'd love if you could just spend a few minutes on the new long-range plan, 4%-5% top line, greater than 300 basis points of operating margin expansion over that time and free cash flow conversion, EPS growth in the low double digits. What's underpinning that and sustaining that? I'll just leave it there. Thanks.
Great. Thanks, Robbie. As we think about the 4%-5% growth, underlying that is the end market growth, the WAMAGR of 3%. As a result of innovation, along with geographic expansion, we expect to outgrow our WAMAGR by 100-200 basis points sustainably. Frankly, that's something that we've done over the last few years. You'd have to adjust for COVID impacts and those items. It's something that's consistent with the performance that we've seen and leveraging things like the new pump launch, which we expect some launches in our pharmaceuticals business, continued performance in our PD business in renal. You put all those things together, and we have clear line of sight to exceeding the WAMAGR by 100-200 basis points. That's really a foundational element as we think about the growth story.
On the bottom line, what's going to happen is we're going to expand more operating margin more than 300 basis points. There are a number of factors in play on this. First, we're going to see some benefits of mix, new product launches, and actually just general volumes, because as we add more volumes to the existing infrastructure that we have in place, that's a benefit. That is a positive which more than offsets the headwind that we're going to see and that we've seen from pricing. Those two things kind of counteract, but we see some benefit with price volume and mix offsetting maybe a little more than 100 basis points of price decline, perhaps 150 over the life, not in an annual basis, but in a total basis. Then one of the big and important drivers is our integrated supply chain.
What's going to happen here is we're going to see several hundred basis points of improvement, which is really net of inflationary pressures. We've seen significant inflation on categories like resin, packaging, API, molded components this year. That's been a real headwind. I've talked about that extensively. Furthermore, we've seen freight costs that have been very significant. What happens is, due to the rich pipeline of improvement initiatives we have in place, we're able to more than offset that. What you can expect to see in this plan going forward is really steady performance on SG&A and R&D with a meaningful gross margin improvement. That's what drives the margin expansion that we're talking about.
On the SG&A and R&D front, what I would say is, these levels have been depressed as a result of COVID and what's going to happen is we're going to offset some increases in spending with performance initiatives supported by our digital transformation. Maybe that's a little bit of color to share. Like I said, we hope to report a new LRP once the transaction closes, which is reflective of the combined company.
Great. Thanks. Maybe just one more factually asking. You mentioned about $250 million in cost synergies at three years post-deal close. Does that include any sales synergies? If so, what percentage? Thanks.
Sure. Just a word on the cost synergies. Basically, frankly, what's more exciting is the opportunity from a revenue standpoint and a product enhancement standpoint. We haven't really reflected that. From a cost synergy standpoint, we benchmarked probably 15 - 20 medtech deals, and we identified this amount as roughly a median amount of cost synergy to identify. We also supplemented that with some conversations and analytics and got very comfortable that we can do this without disrupting sales, without disrupting R&D. From a sales standpoint, there's really at this point, no impact included in our synergy numbers, in large part because the real spirit of this deal is about accelerating growth, and we want to make sure that we preserve that as much as possible. This is exclusive of that.
Yeah, I just want to underscore what Jay has said, that we have not included any sales synergies here. We believe, and we also expect to be accretive to our growth because the WAMAGR is in excess of ours, but we still need to meet in more detail in terms of the future product pipeline of both companies and how they come together, how the acceleration of our digital health products can help us. There's some real-life experiences in specific clinical outcomes, operation efficiencies that I think we can get into hospital workflows, as well as helping the clinicians accelerate detection and treatment of situations that arise during the treatment of patients, such as fluid management, sepsis management, things of this sort. We need to explore this more. What you have in front of you does not count those assumptions in.
Thanks, Robbie.
Thanks.
Your next question will come from the line of Bob Hopkins for Bank of America. Your question, please.
Oh, thank you, and good morning, and congrats, everybody, on the transaction. Just two quick things. Jay, I appreciate all the details in here on your standalone outlook for the next couple of years, and on the synergies that you guys suggest. It's pretty simple math to put this together. I'm just curious, as you look in the out years, like my back of envelope math suggests that these statements that you're making today suggest earnings power for the combined company in 2023 and directionally approaching $5. I was just curious if you think there's something dramatically wrong with the math I'm doing based on your disclosures? That's the first quick thing.
I will stop in terms of commenting on specific modeling. I think this is more of a stay tuned for when we share our investor day and we talk about the combined company. We're so excited to get to closing, Robbie. We think this is a tremendous asset.
This is Bob.
Bob, sorry. Sorry, Bob. Tremendous asset with tremendous growth opportunities. Actually, we've been hesitant to talk about pro forma combination until we get to the point where the transaction's closed. Like you say, we think it's going to be 20% + accretive by year three. We understand what our revenue projections are. You can do the math on their revenue projections as well. We've outlined and delineated what our margin improvement is. Furthermore, we have a line of sight to a synergy, which we think is achievable, doable, and we've got the right apparatus in place to execute on that. You have all the component pieces, but I'll stop short of commenting on the final number.
Okay. Thank you. Joe, the initial investor reaction to the speculation was a little mixed. I was wondering, can you just help us better understand the potential? Maybe give us one or two concrete product-level examples of where you see some real potential for revenue synergy here. You called out Medication Delivery. Maybe focus on that to kind of bring it down to earth. How does this transaction make your Medication Delivery business better as one way of articulating a synergy opportunity? Thank you.
Thank you, Bob. Let me speak specifically about two areas, and I'll focus on one. Fluid management and sepsis management. What is the issue that you have with fluid management? It's actually ensure that the patients who are critically ill don't have hypovolemia and hypervolemia, so either too little fluid or too much fluid. That's the treatment that is actually administered during the sepsis event. Sometimes there is a fluid overload, and it's always a trial and error. Sometimes they have protocols, depends upon the hospital. How do we get our new pump that is currently with the FDA, with their data collection capability, and other data points that can come from sensing pads, sensing mats that get the information that we currently don't have. How do we bring this all together?
Hillrom has vital signs devices that are gathering this information all the time with analytic capability. If you bring that to our Baxter portfolio, for instance, we just had an analysis done on pump data by a partner of ours on the outside, and we can actually determine how much drug specific, drugs being given to a patient, and sometimes in excess or too little. We can look at protocols. The combination, again, their analytics and our pump analytics will bring together, and the CRRT, remember, the pump pumps fluid. CRRT, which is treating the kidney injury, removes the fluid. The balance here is highly important for those patients. This is just one example of potential applicability of the companies coming together. Okay?
The other part is nothing to do with this, is geographic expansion ability, really going to market that we currently have subsidiaries, have presence and accelerate the growth there. We have not put those numbers in yet. Why? Because we expect them to be positive. We will come back after the deal is closed with a specific combined company Weighted Average Market Growth Rate as well as our CAGR and opportunities to accelerate revenue of the combined entities.
Thank you.
You're welcome.
Your next question come from the line of Matthew Mishan at KeyBanc. Your question, please.
Great. Thank you for taking the questions. Hey, Joe, I imagine you had some pretty good conversations with your largest hospital customers around this. What did they say about the Hillrom value proposition of bringing together patient monitoring and care communication around the core hospital beds?
We usually don't have conversations with our customers about potential acquisitions of the company, but we did the research about what is Hillrom today, what was Hillrom of the past. I think John was pretty specific. One of the concerns we would have is the high dependency on capital goods, which is now down to 35% due to the excellent portfolio management that John and the team has done. I think that the company is well-regarded across all segments of care. Remember, this is not only hospitals, this is about doctor's office and also the home. They have brought some very interesting products to the market. Very innovative. Their Voalte Nurse Call is one of them. They have the mobile app. They have the ability to provide the nurses with information, real time, what is happening to patients.
As an example, they were able to get a large system in the U.S. to sign a five-year agreement with them in terms of providing insights on data in Connected Care to their hospital system. This is just a point where they're really able to cross that conversation about our product and the software coming along versus just the solution of the software and the connected health going in. Our customers do regard Hillrom as a leader in their space, in all categories that they have, and I'm sure they will see us together as a great partner in the future like they see the companies independently today.
Just for John, can you talk about your future plans and whether you see a potential role in the combined organization going forward?
My focus right now is making sure that we continue to execute exceptionally well as a standalone company, and we prepare to integrate with Baxter and bring the value of these two companies together. I have not considered my future plans at this time.
Okay, excellent. Thank you, guys.
Your next question will come from the line of Larry Biegelsen with Wells Fargo. Your question, please.
Good morning, and thanks for taking the question. Congrats on the deal. One on Baxter standalone, one on the deal itself. Jay, for Baxter standalone, for the 2021-2024 guidance you gave, can you talk about how things are progressing this year, given that this is the base? Are you confident in the 2021 guidance you provided, is there any reason for the 4%-5% and 300 basis point margin improvement over the next three years not to be linear? I have one follow-up.
Overall guidance is tracking in line with expectations at this point. We'll watch September. We have an updated forecast process that we undertake in the month of October. Things are progressing in line with the expectations that we've shared. What I would say is what we're watching is the Delta variant and what is the ultimate impact on surgical procedures and admissions. While that has been an impact, it hasn't been disruptive to financial projections at this point, but we're watching that and any other variants that emerge. The other thing that we're watching is inflationary pressures. I think we've been able to navigate that well. We identified that early on and started putting mitigation activities in place. Again, this is a wild card that we'll diagnose in our next forecast process.
At this point in time, the base, from my perspective, is solid, and we're in line with those expectations. Why wouldn't it be linear? The linearity depends on things like COVID assumptions in 2022. Our current view is that the U.S. returns to 2019 levels in 2022 and grows from there, and we have some slight impact in Asia-Pac and Europe, Middle East, Africa. That's an assumption that we're watching very closely. The second item is related to the other comment I made related to inflation. We have some inflationary assumptions built into the 2022 number that does impact growth a little bit relative to 2023 and 2024. That's going to be a factor that shapes the linearity of the growth. The severity of that is an open question.
We have line of sight to a few months out, but as far as inflation goes, it's very difficult to have a line of sight to one year out or beyond. Those are a couple of comments in terms of how we're thinking about the LRP.
Jay, that's helpful. Just one on the deal. Closing in early 2022 is relatively quick. Are you assuming any potential divestitures? Do you need regulatory approval in places like China, and just confidence in that early 2022 closing? Thanks for taking the question.
Larry, we don't speak on behalf of any of the regulatory agencies. Like we do the same thing when questions are asked about timelines for products to be approved in FDA. I would say that we anticipate needing customary regulatory approvals in the United States and certain other jurisdictions outside the U.S., including China, from your question. Additional information regarding the required regulatory approval is expected to be contained in the proxy statements to be filed by Hillrom in connection with the securing shareholder approval for the transaction. Okay? You can look at our product pipelines, you can look at our product offerings and draw your own conclusions. We do not comment on the action needed, their procedures.
Thanks, Joe.
We have time for one more question.
Your next question will come from the line of Travis Steed at Barclays. Your question, please.
Hey, thanks for taking the question and congrats on the deal. Just one question from me. I was looking at your Weighted Average Market Growth Rate for core Baxter, Jay, and it was around 3%. At the last Analyst Day a couple of years ago, it was 3%-4%. Some of those underlying markets, the growth and the magnitude changed by quite a bit. Just would love some color on how you see your underlying markets today versus what you saw back in 2018 and just kind of call out some of the biggest changes in the markets that you're in.
Travis, we previously identified 3%-4% as the Weighted Average Market Growth Rate, as you rightly point out. Our current estimation for 2021-2024 is 3%. So against the midpoint, we lost roughly 50 basis points. There's a number of factors in play, but I would say that one of the large drivers of it relates to our pharmaceuticals business. We previously had assumed 6%-7%. We've seen a little bit more pricing impact than we anticipated in that particular area. The competition has been more intense than we thought, and so that market is now growing in the 3%-4% range. That's really the largest driver, I would say. There are puts and takes, things like, for example, the acute business.
In the next three years, we expect a mid-single-digit growth versus higher single digit, but that's largely because of the COVID comp that we're dealing with there. Things like renal, that's in line with our expectations. Medication Delivery, slightly below, given some changes to the U.S. IV solutions landscape. I think the important point is by and large, the base is intact. We can count on the 3% growth. There have been some changes around the edges, most notably in pharma.
Great. Thanks for the color. Congrats again.
Thank you.
With this, we can wrap up the call. I want to thank everyone for joining and really excited about this and appreciate everyone from the team at Hillrom, and we're really looking forward to this collaboration. Thank you.
Thank you, Clare. Thank you, everyone. Thank you again, John and the team at Hillrom. We're looking forward to a fantastic future journey. Thank you.
Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating. You may now disconnect.