Good morning. My name is Angie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Danaher Corporation and GE Biopharma Acquisition Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key on your telephone keypad. I would now like to turn the conference over to Matt Gugino, Vice President of Investor Relations. Mr. Gugino, you may begin your conference.
Thanks, Angie. Good morning, everyone, and thanks for joining us on the call. With us today are Tom Joyce, our President and Chief Executive Officer, Matt McGrew, our Executive Vice President and Chief Financial Officer, and Dan Comas, our Executive Vice President. This call will be recorded and posted on the Danaher website, www.danaher.com, under the heading of Events and Presentations, and will remain on the website for one week. I'd like to point out that a related press release, the slide presentation supplementing today's call, and any reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the investor section of our website, www.danaher.com, under the heading Events and Presentations. During this presentation, we will describe certain of the more significant factors relating to today's announcement, and the supplemental materials include additional important information.
During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings in the supplemental materials, and actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date they are made, and except as required by law, we do not assume any obligation to update any forward-looking statements. With that, I'd like to turn the call over to Tom.
Thanks, Matt, and good morning, everyone. This is a very exciting day for Danaher. This morning, we announced that we entered into a definitive agreement to acquire the biopharma business of GE Life Sciences for approximately $21.4 billion. Factoring in anticipated tax benefits from the transaction structure, the net purchase price is approximately $20 billion. This is an outstanding business with complementary strengths across the bioprocessing workflow. It brings a scaled and differentiated offering in downstream process chromatography and a strong presence in upstream bioprocessing consumables and equipment. This acquisition is accretive on multiple levels and further advances Danaher's evolution into a higher growth, innovation-driven company. There are a number of strategically compelling factors involved in our decision to acquire this outstanding business. First, GE Biopharma is a leading global player in the attractive biologics production market and well-positioned to benefit from long-term secular growth drivers.
We believe this acquisition will accelerate and further enhance our Life Sciences platform strategy, complementing our efforts to materially reduce biologic drug production costs while compressing the time to market for life-saving drugs. Secondly, this business brings an incredibly talented, highly engaged, and innovative team to Danaher, whose expertise, when combined with our associates, will provide customers with end-to-end bioprocessing solutions and enable breakthrough development and production capabilities. Finally, we see opportunities for the Danaher Business System to enhance an already high-performing business, driving even greater long-term value for customers, associates, and shareholders. Now let's take a closer look at the business and our opportunity. GE Biopharma is a leading provider of instruments, consumables, and software that support the research, discovery, process development, and manufacturing workflows of biopharmaceutical drugs.
The business is well-positioned for several compelling long-term growth drivers, such as the significant runway associated with the biologic drug development pipeline and the rapid proliferation of cell and gene therapies. Upon closing, GE Biopharma will be a standalone operating company within our Life Sciences reporting segment. We will have nearly doubled our exposure in the biologics end market, which will represent approximately 50% of our Life Sciences revenue of $10 billion. GE Biopharma is expected to generate annual revenue of approximately $3.2 billion in 2019, with 75% of this revenue considered recurring, which naturally supports an attractive margin profile. We expect GE Biopharma to grow core revenue approximately 6%-7% annually, which is generally in line with the business's recent performance.
The business is primarily comprised of bioprocessing, which is expected to generate annual revenue of approximately $2.8 billion in 2019. Within bioprocessing, upstream is approximately $1.1 billion in annual revenue, with 5%-6% organic revenue growth, and includes cell culture media, single-use technologies, and lab development systems and consumables. Downstream is approximately $1.7 billion in annual revenue, with 7%-8% organic revenue growth, and includes chromatography systems and consumables, software, and service. The other $400 million of GE Biopharma revenue includes lab filtration and genomics consumables, which has low to mid-single digit core growth rate. As part of Danaher, GE Biopharma will bring complementary assets and significant scale in key segments of bioproduction that enhance and expand our biologics customer solutions.
Process chromatography is an indispensable step in manufacturing biologics, and GE Biopharma's position in this downstream process is highly complementary to where we participate today with filtration at Pall. This combination will help increase our visibility to monoclonal antibody, vaccine, and gene therapy projects in development, representing a growth acceleration opportunity in the future. GE Biopharma also has a strong position in upstream processes, providing equipment and consumables like cell culture media, which is very complementary to Danaher's position today. In single-use technologies, where we have a position at Pall, it brings a complementary product suite that will enable us to better serve our customers with a more comprehensive end-to-end solution. As you can see, this is an incredibly strategic addition to our Life Sciences portfolio that will help establish Danaher as one of the world's leading providers of bioprocessing solutions.
GE Biopharma will also contribute a high level of innovation via an incredibly talented team, renowned for producing differentiated products and technology that are employed every day around the world in mission-critical applications. The application know-how and depth and breadth of industry experience that GE Biopharma brings to the table will be a terrific addition to our Life Sciences businesses. These are the people who invented process chromatography, and they have been working with customers to solve their toughest bioproduction challenges for more than 30 years. It's not just about the solutions that GE Biopharma will add to our portfolio today, but it's also what the team is capable of creating tomorrow and for the next 30 years that will truly differentiate how we're able to help our customers going forward.
The caliber of talent that will be joining Danaher as part of this acquisition is perhaps GE Biopharma's greatest contribution, and we look forward to working together with this passionate and talented team. We also see opportunities for the Danaher Business System to enhance an already high-performing business. We have identified an initial $100 million of annual cost savings that we believe can be realized within the next 3 years. Operating as a standalone operating company within our Life Sciences platform will simplify the business's organizational structure and, in turn, enable greater focus. We see the potential for additional cost and revenue synergies, and we'll discuss these with you as we move forward. Putting it all together, we believe this acquisition provides a unique opportunity to meaningfully accelerate our growth and earnings trajectory.
In the first full year post-closing, we estimate the business will be approximately $0.45-$0.50 accretive to non-GAAP adjusted diluted net earnings per share. We expect this accretion to more than double to over $1 in the 5th full year post-close on a non-GAAP basis. We expect to achieve a high single-digit return on invested capital in year 5 and steadily compound thereafter. Ultimately, we believe the addition of GE Biopharma to our Life Sciences portfolio will help drive tremendous long-term shareholder value. While we work to integrate this business into Danaher, we remain committed to establishing our dental platform as a standalone, publicly traded company.
Given the size of the GE Biopharma acquisition, we intend to modify the structure of our dental spin-off to an IPO, which will provide us with greater flexibility around managing our balance sheet while still continuing our pursuit of setting up DentalCo as a public company. We've not yet determined how many DentalCo shares we will issue, but are likely to start at 19.9%, which will provide us with the option to issue additional shares over time or spin the remainder tax-free. We'll provide more details around the IPO as we go forward, but we continue to expect that DentalCo will become a publicly traded company in the mid to late part of the second half of this year. Now I'll turn it over to Matt to walk you through some of the financial details of the transaction.
Thanks, Tom, and good morning, everybody. I'll provide a little bit more background on the acquisition. As we announced, we've agreed to acquire the Biopharma business of GE Life Sciences for a cash purchase price of approximately $21.4 billion. Factoring in anticipated tax benefits, the net purchase price is approximately $20 billion. This represents a multiple of approximately 17 times expected 2019 EBITDA. The transaction is expected to be completed in the fourth quarter of this year and is subject to customary conditions, including receipt of applicable regulatory approvals. We expect to finance the all-cash transaction with approximately $3 billion of proceeds from an equity offering, which may include an offering of mandatory convertible preferred shares and the remainder from available cash on hand and proceeds from the issuance of debt and/or new credit facilities.
We anticipate a blended interest rate of less than 3% as our European operations offer the ability to secure more attractive rates in those markets. As a result of this acquisition, we expect that our credit rating is likely to be updated to BBB+. This will be a carve-out of GE's Life Sciences platform within its healthcare segment. GE Biopharma will become a standalone operating company within our Life Sciences segment, bringing our total annual segment revenue to approximately $10 billion upon closing of the transaction. Given the carve-out nature of the deal, we expect to incur initial setup costs to establish GE Biopharma as a standalone operating company, and we will exclude these costs as well as non-cash amortization and acquisition-related charges from non-GAAP adjusted EPS.
We've been successful with carve-outs like this in the past, SCIEX and Siemens Microscan Business, two most recent examples, and we're well prepared to execute this transaction. With that, I'll turn it back to Tom for a few final words.
Thank you, Matt. Over the past few years, you've heard us talk a lot about building a better, stronger Danaher. The acquisition of GE Biopharma represents an important and transformational component in that pursuit. We could not be more excited about this business, the team, and what they'll bring to Danaher, and we look forward to realizing our potential together going forward.
Thanks, Tom and Matt. That concludes our formal comments. Angie, we're now ready for questions.
Absolutely. If you would like to ask a question, please press star one on your telephone keypad. We do ask that you present one question with one follow-up during this time. Please hold for your first question. Your first question comes from the line of Derik De Bruin with Bank of America Merrill Lynch.
Hi, good morning. Congratulations on the deal.
Thank you. Good morning, Derik.
Good morning, Derik.
Hey, just a couple of questions. When you look at the accretion math and everything that's sort of in this, everything that you're giving sort of assumes the dental IPO, assumes all the dental numbers into this is like an all-in once that's all done? Or is there incremental to be thought of on-- or is it more of an impact on the dental when you think about it? Just sort of wondering if you've got a couple of moving parts here, I'm getting some questions on that this morning.
It assumes the dental is in our numbers right now.
Got it. Okay. Just sort of what I know about these businesses, it doesn't seem like there's a ton of regulatory overlap. There'll be some overlap with Pall and some of this stuff, but do you foresee any sort of significant challenges?
We do not, Derik. Obviously, teams on both sides have done a lot of work on this. These are really complementary businesses when you look across the portfolio of the product lines on the GE Biopharma side as well as on our side. With very little overlap and the complementary nature, we don't anticipate issues there, but obviously, the regulators will do their job, and we'll wait for any feedback. In general, we feel very good about where we are in terms of the regulatory context going forward.
Great. I'll play nice and get back in the queue.
Thanks, Derik. See you later.
Your next question comes from the line of Ross Muken with Evercore ISI.
Good morning, Ross.
Good morning, guys. Congrats. Just a fantastic transaction. I guess, stepping back, if you think about sort of where you play now across the bioprocess continuum, you obviously have one of the largest, if not the most significant footprint now in terms of breadth. I guess, how do you feel the sort of market evolution now will play into sort of your strengths, and you will be able to get synergy out of having a footprint in both the filtration part and other pieces, single-use you got from Pall as well as kind of where this business has great sort of footholds, particularly on the downstream side, where they have a very unique asset base?
Sure. Well, thanks, Ross. Obviously, we feel very good about where the portfolio has been in the past, and obviously, this is a tremendous addition to the portfolio. Particularly given the complementarity of it, as I just mentioned to Derik, very little overlap. We have always been very well positioned on the life science tools side, with about roughly $0.5 billion of exposure to the biologics market. Obviously, with the addition of Pall, that was a significant step forward in terms of our exposure to biologics with an incremental $1 billion. Obviously, with the upstream and downstream portions of the GE Biopharma business being complementary to our positions in filtration. We feel very good about that. Ross, from a synergy standpoint, as you know well, this is a very long cycle business.
The good news is, you are largely specced in, you are specced in early on in the development process. I think what commercial synergies we would see would actually be quite limited in the near term. Small and arguably almost immaterial. I think over a longer period of time, there are probably some opportunities there, as we serve customers with more complete solutions. I think that is more downfield from where we are today. We feel very good about where the portfolio sits today, the breadth of offerings into a market that ultimately chooses best-of-breed technologies. If you look across our leading market positions, both on the tool side as well as in bioprocessing workflows, we feel very good about the positions we hold.
Maybe just to go back to the comment on sort of the dental spin, I feel like I've gotten a number of questions on this now. Now that it looks like an IPO, I'm guessing there, you'd probably, for the tax-efficient nature take on sub 20% public initially. I guess, could you just help us think through kind of the implications of how the P&L will look at a high level then over the next, call it 12, 18 months as sort of this comes in and that EPS, obviously leaves, and then you've got the de-leveraging potentially now from that. Just help us think conceptually through how that structure would look versus the existing.
Well, Ross, maybe I'll chime in. I think we'll probably revisit once we get to the other side of actually having the IPO and kind of give a fresh update of what the P&L will look like, kind of accretion, et cetera. There's quite a few moving parts here, as you know. As we get closer to that, we'll make sure everybody's got the visibility. I think it's probably easiest for us to kind of give a better update as we get to the other side.
Ross, this is Dan. Assume the IPO happens toward the end of the year, it has no impact this year, then next year we would get 80% of the earnings. That'd be a tiny bit of dilution from that. Of course, then we'd get 20% of the IPO proceeds, which could be used to either buy back stock or reduce debt, so that would be an offset. It's hard to think it's going to have an impact for this year and next in any material way in earnings.
That's super helpful, Dan. Thanks so much. Congrats again.
Thanks, Ross.
Your next question comes from the line of Doug Schenkel with Cowen.
Morning, Doug.
Hey, good morning. How you doing, guys? Congratulations.
Hey.
Thanks.
When you acquired Pall, you initially identified around $300 million of cost synergies, and Pall had less revenue than GE Biopharma at the time of the acquisition. Understanding that GE Biopharma is a decently higher margin business at this point than Pall was at that point, are there any other structural reasons why GE Biopharma synergies can't get into the neighborhood of Pall over time? Relatedly, you noted your initial cost synergy estimate doesn't include certain revenue synergies. Tom, in your prepared remarks, you talked about some additional cost synergies that could come in.
I'm guessing you don't want to go into too much detail, I'm just wondering if you could give us a sense of maybe where revenue synergies could be generated over time, and if there are any parallels to Pall, both from a cost and I guess more to the second part of this question, from a revenue synergy standpoint.
Sure, Doug. Thanks. Clearly, there are, first of all, similarities between GE and Pall in terms of tremendous biologics exposure, high recurring revenue, et cetera. These really are two different deals, in some respects. Pall really was about cost savings and accelerating innovation, obviously we've accomplished a significant amount on both those fronts. Was really about enhancing the execution of that business. As we've said here, there are clearly some near-term cost savings with GE, in this case, we're really focused on the first three years. Our efforts are really, in this case, more about getting this business to stand up on its own. As we mentioned, we have to carve this out of GE, we need to obviously ensure that we are sustaining a high level of performance of this business, which is demonstrated in the past.
Clearly, we have opportunities in terms of some near-term synergy and, of course, some long-term synergies. I'll come to that in a second. If you compare the businesses, obviously, even with a more modest level of cost savings at a 17x multiple for a higher growth business than Pall, this obviously is pretty attractive. In terms of those synergies, the $100 million we're talking about in the first three years or call it $30 million-$35 million a year, can come in a variety of different forms. Areas that we're familiar with in the past, like purchase price grants and value engineering, productivity initiatives, Clearly we always focus on indirect spend opportunities. Given this is a carve-out, obviously there's a lot of work to do to stand that up. The carve-out components are really focused largely on the G&A side, IT, finance, HR, legal, et cetera.
Keep in mind, the core direct component of this business we get, which is a tremendous R&D team, a fantastic commercial sales and marketing team. We'll be focused on other areas to take cost out in a non-customer facing basis. And that's really where we'll drive some portion of these returns. In terms of smaller near-term synergies, there are a few, but again, they're going to be relatively modest. We'd be talking about maybe perhaps some opportunities around their FlexFactory or KUBio business. But again, I think our longer-term opportunities really have to do with the complementarity of the portfolio in what, as I just mentioned, is a fairly long cycle business.
Super helpful, and maybe a quick related follow-up. It's not surprising given your history that you would run GE Biopharma as a standalone operating company. That said, I'm wondering how closely you can essentially have Pall Life Sciences and GE Biopharma work together. I know that's kind of a basic question, but I ask it in part because we've heard a lot in our checks recently that there are opportunities for companies to gain additional share with fully integrated start-to-finish bioprocessing solutions, which you're obviously in a better position to do today than you were last week. I'm just wondering what your thinking is on that opportunity.
Yeah. Thanks, Doug. These are really opportunities that are, I think, a ways out in the future. As I just mentioned, these are long cycle businesses. You're spec'd in early on in the process. Customers choose best-of-breed technologies. Clearly, we'll be looking to provide the best possible solutions for our customers. To the extent that we can bring a broader set of solutions for them to choose from, I think that's to the benefit of our customers. Again, I think those are downstream opportunities that are beyond the period where we stand this business up as a standalone enterprise, look for those opportunities to potentially collaborate in the interest of the best possible customer solution.
Great. Thank you again.
Thanks, Doug.
Your next question comes from the line of Daniel Brennan with UBS.
Great. Thank you. Thanks for the questions, and congrats on the deal. The first question I wanted to ask was related to the growth rates that you're assuming for the business, I guess 6% to 7%, a little bit faster downstream, a little bit slower upstream. Maybe could you speak to, historically, what has been the growth rate for these businesses? Because it certainly seems like there might be some conservatism baked in here.
Yeah. Thanks, Daniel. GE Biopharma has been a high single-digit grower over the last three years, we would expect the business to continue to perform at those levels. Our planning assumption around 6% to 7% core growth is, in some respects, a prudent assumption. At the same time, if you look at the product categories, you've got product categories really at different growth rates. You've got some categories that are double-digit growth categories, like single-use technologies or cell and gene therapy. You've got other categories that are a little bit more in the high single-digit area, which is kind of similar to what we see in Pall Filtration. Then you've got some of the GE portfolio that's a little bit more low single or mid-single digit, like lab filtration, for example, formerly known as the Whatman business.
I think when you blend those together, we look at that 6 to 7 as being about right as a planning assumption. If you look at our history, you look at our recent experiences with Cepheid, with Pall, with IDT. While we've had some reasonable planning assumptions, they've obviously performed quite well against those. We will clearly be looking to deploy the tools of the Danaher Business System as appropriate to the team's opportunities as they define them. Look at what we did at Cepheid. More than 20% new customers added in the first couple years. You look at the acceleration of innovation at Pall.
GE is an exceptional performing business today, there's no question, over the longer period of time, the tools of DBS can continue to help, certainly sustain, if not certainly enhance the growth rate of the business, and we'll certainly be focused on those opportunities.
Great. Thanks, Tom. Maybe just as a follow-up, given that we understand GE's chromatography business downstream is really potentially the gem. Not to say the other businesses aren't really attractive as well. Maybe can you give us a little color on that specific business, which I know comprises the majority of the downstream business, like any color regarding their kind of competitive positioning, share trends in that business, any important technological changes on the horizon? Just some color there. Thank you.
Thanks, Daniel. Clearly, they have an exceptional position in downstream, with a broad portfolio of leading product brands. These are mission-critical products used in bioproduction, and they've continued to innovate. In many cases, their leading positions that were established a number of years ago have been reinvented over and over again to now enhance that leadership position. They've done that both through a significant amount of trade secrets and technical know-how, as well as important intellectual property. I think from a share position standpoint, we feel very good about not only the stability of the share position of the business on a downstream basis, but the opportunities, again, over a longer period of time as we continue to advance our tools around funnel management and market visibility to enhance that share position, again, over time.
Great. Thanks, Tom.
Thanks, Daniel.
Your next question comes from the line of Deane Dray with RBC Capital Markets.
Thank you. Good morning, everyone.
Morning.
Hey, it certainly didn't take Dan very long to generate results in his new role in M&A.
I'm good as a part-timer. It's called continuity, Deane.
That's their success right there. Hey, just curious.
We're just wondering where McGrew got the enthusiasm. She's only been fully in the chair for less than two months here. It's great to see, though, isn't it?
It is great to see. Hey, was curious why the pharmaceutical diagnostics business was not included in this transaction. Is there any color you can provide there?
Deane, I assume you're talking about the business that is often referred to as the contrast agents business, and that's a business, obviously, that, well, I guess from GE's perspective, they retained. We got, Deane, the product portfolio that we really wanted. This was the portfolio that we found most attractive. I think both parties ended up, from a product portfolio perspective, in the place we wanted to be, with our getting the key product that we were looking for, and I assume GE being where they wanted to be.
All right. That makes complete sense. Diagnostic, the contrast imaging agents would not have been a fit. For Matt, any color on the tax benefits and how those roll out?
Yeah. We've got about $1.4 billion of tax benefits that we're going to generate in the deal. Most of it's, as you know, kind of structuring related, being able to get asset purchases versus stock purchase. I think the benefit is probably going to be in the first five years, Deane, is how the rollout will come through. Pretty quickly here.
Got it. Thank you. Congrats.
Thanks, Deane.
Our final question comes from the line of Richard Eastman with Baird.
Yes. Good morning.
Morning, Rick.
Hey, congrats. Hey, just a quick question around the downstream bioprocess business. If I think about that business and I think about the opportunities there on the chromatography side, the overlap there, and I think even about the upstream business with the Whatman GE business and Gelman Pall business, there just seems to be tremendous channel synergies here. When we're sharing the same customer base, we're basically going to see, I would think, direct sales from both entities kind of in the same customer accounts. How do you see that playing out over time? I would think the sales synergies here and the channel synergies here would be pretty significant.
Thanks, Rick. As I mentioned, I think our portfolio position relative to the GE portfolio in the downstream end of the market are really complementary. Really, they're not overlaps, but certainly complementary. As you say, that may represent an opportunity where, if you looked at our customer positions today versus GE's customer positions, we may have certainly some similarities in terms of those customers. This is a direct business, to your point. I think the key thing to remember, and I apologize for some repetition in this comment, that these are long cycle businesses and spec'd in early. In some respects, while the call point is generally the same, you are going to have some different choices that customers are going to make relative to filtration versus chromatography.
While we're thrilled with leading positions there, it's going to take some time before we can determine whether there's an opportunity in a joint customer situation. Again, we'll be standing up the GE Biopharma business as a standalone company, it will have its own sales force, its own commercial operations, and it will continue to focus exclusively on its product portfolio and its key customers today. That is essential. Then again, over time, and I would suggest that's over a multi-year period, we'll be looking for those opportunities for commercial synergies, but it'll take a bit.
Okay. Just as a follow-up, is there any financing revenue that comes into GE here, bioprocessing on the downstream side? Again, my understanding was that GE Biopharma would finance some of the startup kind of downstream capabilities. Is that the case, and is there any financing revenue?
No.
Okay.
There's not. I think there's some very modest things that were done way back in the past, but that is not applicable today.
Got you. Okay. Great. Thank you, and congrats again.
Thanks, Rick.
Thank you. I would now like to turn the conference back to Matthew Gugino for any additional or closing remarks.
Thanks, Angie. Thanks everyone for joining us today. We're around all day for questions.
Thank you for participating in today's conference call. You may now disconnect your lines at this time. Have a great day.