My name is Mark, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to today's conference call. All lines will be 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 that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star two. I would now like to turn the call over to Mr. Matt Gugino , Vice President of Investor Relations. Mr. Gugino , you may begin your conference.
Thanks, Mark. Good morning, everyone, and thanks for joining us. On the call today are Tom Joyce, our President and Chief Executive Officer, and Dan Comas, our Executive Vice President and Chief Financial Officer. This call will be recorded and posted on the Danaher website, www.danaher.com, and will remain on the website for one week. A replay of this call will also be available until May 20th. The replay number is 888-203-1112 in the U.S. and 719-457-0820 internationally, and the confirmation code is 8662810. During the call, we'll make forward-looking statements within the meaning of 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, and actual results may differ materially from any forward-looking statements that we make today.
These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. With that, I'd like to turn the call over to Tom.
Thank you, Matt, and good morning, everyone. This is an exciting day for Danaher and an important step in our company's history. This morning, we announced both the signing of a definitive agreement to acquire Pall Corporation and our intention to separate Danaher into two independent, publicly traded companies. I'll discuss the proposed separation later, but first, I want to provide you with the details of the Pall acquisition. The boards of directors of Danaher and Pall have each unanimously approved the agreement for Danaher to acquire all of the outstanding shares of Pall at a price of $127.20 per share in cash, representing total consideration of approximately $13.8 billion, including assumed debt and net of cash acquired. This is a wonderful company, and this transaction represents a unique opportunity for Danaher and for Pall.
Pall is a highly strategic and attractive business with outstanding franchise, fantastic brand, and market-leading technologies. Based in Port Washington, N.Y., Pall is a leading global provider of filtration, separation, and purification solutions that are used to remove contaminants or separate substances from a variety of liquids, solids, and gases. Decades of work by the company's filtration engineers and scientists have enabled Pall to build a highly respected brand on which customers rely to solve their most difficult purification problems across the broad spectrum of life science and industrial end markets. In 2014, their fiscal year, Pall generated $2.8 billion in revenue, with $1.5 billion from its Life Sciences segment and $1.3 billion from its industrial segment. Pall's installed base model and high technology portfolio of proprietary IP-protected products and solutions make the business both sustainable and complementary to the existing Danaher portfolio.
Approximately 75% of Pall's revenue is derived in the aftermarket, which will significantly expand Danaher's recurring revenue base, a business model we've been building for more than 15 years. Pall's gross margin exceeds 50%, further demonstrating the tremendous value that its customers ascribe to its innovative products. Pall participates in the $20 billion filtration market, which is growing at a mid-single-digit rate. Industry growth drivers are numerous and include the expanding production of biopharmaceuticals, which are used to prevent and cure difficult-to-treat diseases, increasing environmental regulations, and the growing complexity of manufacturing processes requiring advanced purification systems. Product sophistication and high switching costs make this industry very attractive for the long term. Pall's Life Sciences segment is highly complementary to ours. In addition, their industrial filtration business creates another attractive, high-consumable industrial market opportunity for Danaher, similar to our water quality and product identification platforms.
Turning to Pall's end markets, approximately two-thirds of Pall's Life Sciences segment revenue is derived from the fast-growing biopharma market. As a background, biopharma is comprised of companies that produce biologics. That is, drugs, vaccines, and other medical therapies from biological rather than chemical sources. Within this market, Pall's products are used in the advanced research and manufacture of life-saving drugs, vaccines, and cell therapy. The remaining one-third of segment sales are roughly split between food and beverage and medical end markets. Pall's industrial segment serves customers in the process technologies, aerospace, and microelectronics markets. Approximately 60% of segment sales are in process industries, where Pall's high-performance filters and solutions are used by municipalities to purify drinking water and industrial customers to conserve energy and protect critical infrastructure.
The microelectronics market makes up 25% of segment sales, where Pall leads the way with the highest level of technology innovation in filtration used in increasingly sophisticated products and manufacturing techniques. Finally, aerospace accounts for the remaining 15% of segment sales. With the industry's broadest scope of products and technology, Pall is uniquely positioned to meet customers' needs across virtually any filtration application. This is an opportunity to improve an already high-quality business with DBS. Pall's existing management team has done an excellent job of putting the company on the path to long-term growth and enhanced profitability. The Danaher Business System will provide the team with the tools to further optimize sales and marketing initiatives, accelerate product development, and drive quality delivery and cost improvements.
Ultimately, we expect the thoughtful application of DBS tools and principles to result not only in an improved growth trajectory, but in a better customer experience. In total, we've identified approximately $300 million of cost synergies over the next several years, which represent approximately 10% of Pall's current annual revenue. Ultimately, we believe this will be a high-impact opportunity where DBS will have a meaningful impact. The acquisition is expected to provide significant earnings accretion and a substantial base to build on the filtration market. In year one, the acquisition of Pall is expected to be accretive to adjusted diluted net earnings by approximately $0.40 per share, excluding transaction costs, purchase accounting, and non-cash amortization. We anticipate this accretion will more than double to approximately $1 per share by year five.
We expect to achieve high single-digit return on invested capital in the fifth year following the close of the transaction. In addition, Pall provides substantial acquisition runway. Ultimately, we believe the Pall transaction will create tremendous value for our shareholders over time. Before moving on, I'd like to take a moment to thank Pall's Chairman and Chief Executive Officer, Larry Kingsley, and the rest of the Pall leadership team. We're pleased that the Pall board of directors has unanimously recommended this transaction, and we look forward to working with all Pall associates on building a strong future as part of Danaher. With that, let me get into the details of today's other news. We announce today a unique opportunity for Danaher to create more shareholder value as two stronger and better companies.
Danaher has always been at its best when all platforms have had the ability to invest in the highest impact organic growth opportunities, pursue meaningful acquisitions, and employ DBS to continuously improve performance. With this separation, each company will enjoy greater access to capital to pursue both organic and inorganic growth opportunities. We also believe that both companies will be able to accelerate revenue and earnings growth as smaller, more focused, independent businesses. DBS will remain the foundation, allowing each company to further strengthen their market-leading positions while continuously improving organic growth, margins, and cash flow. We have the strong leadership and deep pool of talent necessary to complete this separation well. Both new companies will have strong teams to help drive growth. For our associates, that means the creation of new opportunities for career growth and development.
With that, let's dive into the details about each of the new companies. Danaher will be a more focused science and technology growth company united by common business models with attractive characteristics. The company's businesses had approximately $16.5 billion in revenue in their most recently completed fiscal years and will consist of our life science platform and diagnostics, our dental businesses, water quality, product identification, and Pall. The company will have leading positions in favorable markets, which we believe will help support mid-single-digit organic growth. Over 60% of the company's revenue will come from the aftermarket, which combined with our large installed base of instruments, is expected to generate a stable and sustainable revenue stream. The margin profile will remain very attractive, with gross margins over 50% and mid-teens operating margins. With the help of DBS, we expect significant runway for margin expansion.
After completion of the separation, we believe the business will have a strong investment-grade credit rating, with M&A remaining the bias for capital deployment. Dan Comas and I will continue to lead Danaher. Let's now move to the new diversified industrial growth company, which we'll temporarily call NewCo. NewCo will consist of Danaher's existing test and measurement instruments platform, including Matco, Gilbarco Veeder-Root, automation and sensors, and Danaher's specialty industrial businesses. NewCo, with revenues of approximately $6 billion in 2014, will have market-leading brands in the test and measurement, retail fueling, and automation and sensors industries. After the separation, each of these platforms will have a renewed license to pursue meaningful acquisitions, as well as the ability to invest in the highest impact organic growth opportunities.
We believe the company will continue to have outstanding margin profiles relative to its peers, with nearly 50% gross margins and high teens operating margins. Most importantly, the business is expected to generate free cash flow to help support what we expect will be investment-grade credit rating. We expect the business will have a bias towards M&A, but will also have flexibility for other avenues of capital deployment. Jim Lico, currently Executive Vice President with responsibility for Danaher's test and measurement and Gilbarco Veeder-Root businesses, will become the President and Chief Executive Officer of NewCo upon separation. Jim is a fantastic leader, and I look forward to continue to work closely with him to ensure the highest Danaher standard execution of this separation. Finally, I'm pleased to say that Steven and Mitchell Rales intend to serve on the boards for both companies.
Before turning the call over to Dan, who will break down some of the financial details of the two transactions, I want to thank our associates, customers, and shareholders for their hard work and continued support. Our board of directors is confident that the separation will open the door for substantial opportunities for our associates, provide both companies with flexibility to better serve their customers, and create the most value for our shareholders. Now, Dan, to you.
Thanks, Tom, and good morning. Let me provide a little bit more background on the Pall transaction before moving on to the separation. As we announced, we've agreed to acquire all the outstanding Pall shares for $127.20 per share in cash for a total purchase price of $13.8 billion. The transaction has been unanimously approved by the boards of both companies. The transaction will be subject to customary closing conditions, including the approval by Pall's shareholders, receipt of applicable regulatory approvals, and the absence of a material adverse effect with respect to Pall. We anticipate completing the acquisition by the end of calendar year 2015 and expect to delist Pall following the successful completion of the transaction. We expect to finance the transaction primarily with available cash, commercial paper, and the issuance of debt.
Turning to the separation, we anticipate the transaction will be tax-free to Danaher's shareholders and will not require a vote by our shareholders. As Tom mentioned, we anticipate both companies will be well capitalized with the ability to pursue organic and inorganic growth opportunities, and that each company will have an investment-grade credit rating. The separation is targeted to be completed around the end of calendar year 2016, subject to the satisfaction of closing conditions, including among others, obtaining financial approval from the Danaher board of directors, satisfactory completion of financing, receipt of tax opinions, receipt of favorable rulings from the Internal Revenue Service, and receipt of certain regulatory approvals. After closing the Pall transaction and until we complete the separation, our M&A activity will mainly be focused on bolt-on acquisitions to strengthen our existing businesses.
Thanks, Dan. Mark, we're now ready to open the lines up for any questions.
Thank you very much. For the members of our telephone audience, if you would like to ask a question today, please press *1 on your telephone keypad. If you are using a speakerphone, please ensure that your mute function is off so we can receive your signal. We would like to encourage participants to limit themselves to one question and one follow-up. If you would like to take yourself out of the queue, press *2. Once again, it is *1 to ask a question. We'll pause one moment to assemble our roster. Our first question today comes from Scott Davis with Barclays.
Good morning, guys, and congrats on the deal and good luck.
Thanks, Scott. Good morning.
I'm a little confused, though. I can understand the purchase of Pall, why the need to announce the breakup today? I mean, what got you to this point? Was this something that was in the works well before you went down the path of doing this transaction? Is this just something where you felt that, on a sum of the parts basis, you could create value?
Scott, you may recall in some of the Q&A that we've had since last September that I'd been given the opportunity to think about and share conversations with the board about how we think about the portfolio over time. This was not something that Develop purely in the most recent days or weeks, but something that we've thought about for a period of time. This particular transaction, this capital deployment, and an inbound business of the scale and importance of Pall does create the opportunity for us to put this structure forward. I think it's a unique situation, but one that was born of, I think, a thoughtful view of how we put the overall portfolio into the best position possible for our shareholders.
As we thought about a number of our businesses that had not been the beneficiaries of capital deployment for an extended period of time, we increasingly realized that was perhaps an opportunity missed, and that by structuring those businesses in what we think is a focused, coherent, straightforward structure that allows them then to focus on their end markets and have a renewed license to do M&A, it sort of all came together at this time.
Yeah. No, understood. When I look at the breakdown of the businesses, it almost appears to a certain extent in this, that you're creating kind of a good bank, bad bank. I know that's a little insulting to Jim, and I don't mean it that way, but the Product ID, for example, Product ID, you could pretty much argue should be in the NewCo, potentially even Water. How did you think about the breakout of these two different companies?
Well, we think of these as both wonderful portfolios for starters. A NewCo that is a diversified industrial growth business with the fantastic brands that are represented in that array of businesses is just a tremendous opportunity when put into this new structure. Relative to a couple of the platforms that you referenced, Product ID and Water, those share a number of characteristics with the balance of the portfolio that would continue to be Danaher. They share the characteristics of being razor and razor blade type businesses, high consumable stream, that recurring revenue model, great growth trajectories, terrific margin profiles, and exciting opportunities we believe for continued capital deployment. We see them as having a lot of common characteristics that make for quite a coherent portfolio.
Scott, one of the things we looked at, we looked at the 50 deals that both Fluke and Gilbarco have done, and just the tremendous economic returns we generated in those businesses. Since they kind of don't fit that profile of that razor razor blade, they haven't gotten the capital the last three or four years. We just felt that the way to maximize value of those businesses was letting them get back in the acquisition game to do what they do so well, and we just thought it made more sense to do it as a separate company.
Okay. I know you got a ton of questions, will NewCo report on a GAAP or a cash earnings basis, or are you too far away from that?
I think we're too far away from that at this point, Scott.
Okay. Fair enough. Thanks, guys. I appreciate it, and good luck to you.
Thanks, Scott.
Our next question today will come from Nigel Coe, Morgan Stanley.
Hey, good morning, guys. Actually, Mike speaking for Nigel.
Good morning, Nigel.
On the $300 million synergies number, obviously that's very strong given the size of Pall. Could you break that out between the different cost buckets, and what's your initial take on potential revenue synergies here?
Well, we'll take you through the cost synergies in a lot more detail in future conversations. Those of you, particularly Mike, who followed us in the past, who've seen what we've done in other businesses, we typically get a number of cost opportunities associated with effective procurement and procurement leverage. That will be one opportunity. Some of that comes from the cost of goods sold side, some of that comes from indirect costs. There's obviously a number of opportunities there. A number of our past acquisitions, [inaudible] included, would be examples of that. Clearly, there's the public company cost equation that plays in here. We believe there's a wonderful runway in terms of continuing the growth trajectory. The team at Pall has already done a wonderful job, I think, positioning the business for good growth in the future.
They continue to see very strong growth, particularly in the biopharma segment. Obviously, that bodes well in terms of the drop-through of the margin on that recurring revenue in terms of continuing to drive the operating margins.
Mike, this was a situation where, because it was an auction, we got to do a great deal of diligence. I think we walked out of it with a tremendous amount of conviction about what we can do from a cost and growth perspective. As Tom alluded to, the biopharmaceutical piece of it, which is about a third of the revenues, is the fastest growing piece by a pretty fair margin, and also has gross margins that are more than 1,000 basis points than the overall company.
Thanks. Secondly, the late 2016 dates for the split. I assume a big part of that is getting Pall up and running in the organization and those required approvals. How should we think about the potential for that to get pulled up? What are sort of the gating factors?
On the timeline?
Well, clearly, there's a lot we need to do internally to get it set up for it. We've got to go through the IRS process for the tax-free dynamic of the transaction. Based on what work we've seen from others, we think that a year and a half is the right timetable to do that in a very effective and smart way.
Fair enough. Thanks. Congrats again.
Thanks, Mike.
Our next question will come from Steven Winoker with Bernstein.
Thanks, good morning, guys.
Morning to you.
Congrats, first of all. We've talked about low double-digit, 10% return on invested capital by year five for large transactions for a while, maybe even a little bit sooner. In this case, you've clearly pushed out that metric and requirement. Just give us a little sense for where you're thinking on that front. Is it more about just balance sheet efficiency at this point, availability of other targets that are out there? How are you thinking about that?
Steve, I think we're thinking about it in terms of this being a unique situation and a very special asset that has historically commanded a high valuation. This is one of those situations where, in order to gain the position that we wanted to gain, the strong market positions that this business represents in the life science and in the industrial side, this was one that we were willing to do what we said we were willing to do, which is to adjust on those metrics that had served us so well historically, to do so in a situation that was strategically of high value and great long-term importance.
I think it's important to recognize also, as we talked about, particularly back in December and shared some examples, as to what happens when you open up a new runway for acquisition with a great anchor, great foundational business like this. The examples we showed of what we'd done over time in driving return on invested capital in the water platform, in the test and measurement platform, in the PID platform, et cetera, this sets up a foundation that is very akin to that. While the returns on the face of it for the individual transaction at the moment may be a little bit lower than what we had done historically, we're confident that in this environment, that's absolutely the right thing to do for an asset of this quality, and then over time, we'll build those returns. Steve, I think you're breaking up a little bit.
I think you were trying to ask a follow-up. You there, Steve?
Mark, why don't we move on to the next question and grab Steve when he gets back in the queue?
Again, if Steve could re-queue by pressing star one. Next, we'll hear from Steve Tusa with JP Morgan.
Good morning.
Morning, Steve. Can you hear me okay?
Yeah, we can hear you fine.
Basically, I guess, 1,000 basis points of margin improvement, how do you think about that? I guess, for Pall, to high 20s type of EBIT margin. Is that the right ballpark?
Steve, I think that is directionally correct. I think we view this as a situation like a Radiometer that came in at 20% and is now 30%, actually north of 30%, or a Hach, which came in at mid-teens, which is also in that 30% range today. Again, I think based on our diligence, a lot of conviction both around the operating margin, but also the opportunities to improve the gross margin profile here as well.
Then, I guess, just from a capital structure perspective on the spin co or the NewCo, whatever you want to call it, will they be taking on some of this leverage that you're putting on with Pall, or how are you going to approach that?
Yeah, it's obviously still fluid. Our expectation is that Danaher stays a very strong investment-grade company. I think with the spin co, as we said, our expectation it will be an investment-grade company. I think we've got some more degrees of freedom around that. We want to make sure it has sufficient financial flexibility, both around M&A, but also maybe other ways of providing returns to shareholders. Fluid, but I think it doesn't need to have the exact same structure, the same credit rating that Danaher has today.
Then one last, any dis-synergies we're talking about from a tax perspective, importantly, where will Gigi be going?
Where the what?
Where's Gigi going?
We were hopefully trying to get him out of both companies if we're really successful here. There will be some modest dis-synergies, both from a one-time cost perspective, also potentially from a tax perspective. Based on the work we've done to date, we think they will be relatively modest.
Okay. Thanks a lot. Appreciate it.
Thanks, Steve.
We have Mr. Steven Winoker's follow-up question. He is from Bernstein.
Steve, you back?
Steve, you're in a tough cell phone pocket here.
Steve, unfortunately, we can't hear you.
Mark, let's move on to the next question.
We'll move to our next question.
Steve, we're happy to kind of talk to you offline.
We have Isaac Ro with Goldman Sachs.
Yeah, good morning, guys. Thanks.
Hey, Isaac.
Hey. Wanted to ask maybe a general question about Hach and Pall. There's probably not a lot of people that know a ton about both of those companies. I guess, if you could talk a little bit about where you see the most meaningful revenue synergy there. I think you touched a little bit on it in the prepared remarks, so I'd be curious about where you're most excited about creating some customer synergy.
Yeah. Isaac, I would think of it more in terms of an adjacency from the standpoint of the application of Hach technologies to water versus the application of Pall technologies to water. They operate obviously in different places. I would expect that the revenue synergies associated with that may be somewhat modest, but that's from where we sit today. As we get a little closer and bring the teams together to think more deeply about that, perhaps we will see some more opportunities emerge. I think of them more as adjacencies than necessarily things that come together in perhaps an integrated commercial way vis-a-vis the customer.
Okay, that's helpful. Then maybe just to follow up, as we look at the new standalone Danaher, kind of more focused on life science going forward, one of the themes out there, I think, is the idea of having a consumable franchise to complement the equipment. Now, obviously, Pall will get you a lot of those assets. If we look maybe more specifically, however, in bioprocess tools, it does seem like some of the players there have really explicitly taken a strategy of owning both the upstream media consumables as well as the downstream filtration. Do you think that's important over the longer term in terms of augmenting this franchise to have sort of that complete downstream, upstream kind of media and filtration assets?
I know this is sort of a longer-term question, but just curious where you think you can go with this business once you have it.
Sure. Thanks, Isaac. Let me just start for a second with sort of the frame of your question in the beginning there. While there's a wonderful position that Pall clearly has in life science, and clearly, with the separation, people may want to draw conclusions about our preference for certain vertical markets, by no means are we exclusively framing Danaher going forward as a pure life science play, whether narrowly defined or broadly defined in terms of life science. We are still very excited about the number of vertical markets we play, whether it's the water-related environmental markets or the applied markets that are represented by PID, the food and beverage market, where it plays, as does some of the Pall businesses. I just wanted to make sure we had that frame clear.
Relative to the specifics of your question, obviously, we're thrilled about the position that Pall brings us in terms of biopharm, and filtration is such a valuable portion of that market. That's really our focus. That's really our focus go forward. How opportunities might evolve over time relative to upstream or downstream in the process, we'll see. At the moment, filtration plays such a strategic role in the process that we're very comfortable with that position at the moment. As we get more closely engaged with the Pall team, we'll explore other adjacent opportunities consistent with my comments about bolt-on acquisitions.
Got it. Appreciate all the color. Thanks.
Thanks, Isaac.
Next, we'll hear from Richard Eastman, Robert W. Baird.
Congratulations, guys, on the Pall transaction. I think it'll be a fantastic value enhancer for Danaher.
Thank you.
Tom, could I just circle back for a second? On the $300 million of synergies, could you just maybe pace that out year one, year two? Secondly is, does Danaher bring some sales synergy opportunities to Pall, especially in emerging markets? Is there a bump there that you can contribute to Pall's business?
Rick, maybe I'll just stand on the first question and hand over the second one back to Tom. I think the $300 million we see coming in over the next four or five years, probably maybe a little bit faster initially, but pretty steady over time. This is a very well-functioning, well-run business. We clearly don't want to change their attractive growth profile here. We're going to be thoughtful as we move forward.
Rick, relative to your question about sales synergies specific to the emerging markets, despite having a very good diligence process here, we have not engaged directly with the teams in the emerging markets yet. I would say that based on our history, particularly across a number of the platforms, like our life science platform to name one example, we have had very good success bringing teams together and looking for great opportunities to team up commercially and bring more value, higher value propositions to customers. I do think that's an opportunity. The specifics associated with how we do that and in what markets and what applications, it's still work to be done as we get closer to those teams.
Just as a follow-up, on the separated version of Danaher and NewCo, it sounds like from your comments that the portfolios aren't static through the end of 2016. There'll be some bolt-on activity. Is the NewCo business, as it's being formed, will the recurring revenue stream there bend more towards software and subscription versus consumables, given that most of the consumable-driven businesses seem to be remaining at Danaher?
Rick, I wouldn't necessarily call the direction for NewCo in terms of, say, M&A activity or be it adjacencies or bolt-ons to be directionally biased towards consumables versus software, et cetera. There are opportunities to find consumable adjacencies to a number of those businesses. There are, in fact, software opportunities relative to a number of those businesses. I wouldn't necessarily call a strategic direction there at this point.
Very good. Again, congrats on both transactions. Thank you.
Thank you.
Thanks, Rick.
Thanks, Rick.
Ross Muken, Evercore ISI, has our next question.
Good morning, guys, and congrats. It seems like a series of phenomenal events for you. As you think about how the organization is going to respond, I'm sure you'll be doing a number of town halls and meeting with kind of leaders throughout the organization and seeing folks globally. How do you think the various different organizations and the workforce is going to respond to this? Obviously, the DBS culture has been so important to its success over time. Do you feel like the new organization, particularly on the science and technology side, there'll be more of a growing focus or feeling on the R&D front there? You guys have done so much for new products over time. Do you think splitting that out gives them even maybe more confidence in that future trajectory?
Ross, first of all, yes, we will in fact, be doing a number of associate communications that'll be going on today and in the days and weeks ahead on a global basis. They'll be going on for an extended period of time because obviously, as we said, this new structure will take quite a number of months to put in place. I think the challenges will be relatively low organizationally if you look at it from an operating company and a platform perspective, because there's a very straightforward move here structurally in terms of which operating companies, which platforms. The beauty of Danaher and its current structure with its operating company-centric model is that we have the flexibility to do this without an enormous level of matrix structure or shared overhead. There is some, though.
Obviously, we have a corporate talent pool that's an important resource here, and other small teams that we'll need to work through, and I think that's going to be important, and we need to be sensitive to that. I think the exciting thing is that this presents opportunities for people. In a new structure like this, there's going to be a lot of newfound opportunities from the standpoint of structure and the outlook that people are going to have associated with the growth prospects in NewCo. I think once the information's fully digested, people get a chance to think it through, and we're able to get a few more specifics under our belt, I think this will be well received. Obviously some big news to digest here in the short term.
Maybe just to relate-
If I can, Ross, let me just add, sorry, I missed one quick point there.
Yep.
It shouldn't be missed that having Jim Lico, an extraordinary leader, long tenured at Danaher, one of the most significant DBS zealots and practitioners in the corporation, who few could possibly embrace the Danaher culture in ways that Jim does and demonstrate them day in and day out. That's going to be a tremendously positive reinforcement to all teams associated with NewCo, that there'll be consistency around the culture, that there'll be a continued focus on the tools of DBS, and that we'll be running a playbook that many are familiar with in terms of the growth of Danaher over the last couple of decades.
Thanks, Tom. That's great, and I think obviously as an employee, you'd probably be pretty excited today. As you think about the asset construction and the two pieces, there was a question before about PID. I think that has more in common with some of the assets. When you think about the dental piece, that has still some different growth and more consumer characteristics than some of the other businesses. Although I guess you could argue diagnostics has some of that. As you were thinking about whether two versus three, maybe three is more complicated as different entities, was there any debate as to whether or not there was actually a separate portion of even the technology and science piece? Or did you feel like all the businesses had so much synergy from a financial and strategic perspective that this current structure made the most sense?
Sure. Clearly more the latter than the former. We saw a tremendous amount of consistency in the characteristics of the businesses that are on either side of the structure here. Again, the Danaher structure being more recurring revenue, consumables-oriented. The NewCo structure, perhaps a little bit less so, but I think with still strength of tremendous installed bases on the back of great brands and again, great opportunities. Again, I think, and to your point, sure something in excess of a straightforward structure like this would be more complicated. That's more an executional issue. I think strategically, we felt very comfortable that this organization was coherent and straightforward, both internally and externally from an investor perspective.
No, that's great, Tom. Thank you so much.
Thanks, Ross.
Next is John Inch with Deutsche Bank.
Yeah. Thanks. Good morning, everyone.
Good morning, John.
Morning. Could we, just to go back to the 300 again, how much is part of the $0.40? How much is in 2016? Can we preliminarily assign the cost synergies between the life science pieces and the industrial piece of Pall?
John, we're not going to go into that level of detail for a whole variety of reasons. As I mentioned, the 300 will be phased in relatively evenly as we think about accretion over time.
Okay. That's fair. Now, I just want to go back to Tom, what you were saying earlier. Is it fair, because if you look at Pall, there doesn't seem to be, I think if I hear what you're saying, the cost synergy is really not coming from closing overlapping facilities or combining on a DBS way, sort of footprint rationalization. It sounds like it's more procurement. Is there anything else? Because it does seem like a high number, but I realize you've done the work. Can you help us get a little more comfortable with why the 1,000 basis points makes sense?
Sure. There'll be a broad swath of things that obviously we explore, John, DBS, when applied to a business like this, we certainly learned this at Beckman, presents opportunities for us to drive efficiency and better operating practices in a wide range of situations. Obviously, the manufacturing footprint is an important one. It is one that is obviously closely associated with customers, we would approach that situation very carefully and thoughtfully, and there's no immediate action here in the near term for anything to do with that. That's something that we'll just have to get more familiar with over time, working with the team and figure out what they think makes the most sense.
Hey, Dan, in the slide release, it says that you're going to be borrowing at less than 2%. Could you at least give us what you expect in terms of the $13.8, how you're going to finance it between cash, commercial paper, and I guess term debt? How do you get to the sub 2%? Because it seems like a really low number.
Probably by the time we close, we'd have close to $3 billion of cash, which is earning next to zero here.
Yes.
We would do a sizable piece of commercial paper that we would pay off within 18 months. That would be, to pick a number, just make it easy, it won't be exactly this, call that half of the other $10. That's at well less than 1%, even if rates go up a little bit. You've got the other $5 getting termed out, anywhere from two years to 30 years, it's not that hard to blend to 2% or a little bit less.
Got it. Okay. Thanks very much.
Thanks, John.
Robert McCarthy with Stifel has a question.
Good morning, everyone. I seem to found the phone booth that Ingersoll Rand, so I have a landline. Wanted to ask about the $16.5 billion, I guess, for the Life Sciences Technology Co. Was there a debate about perhaps separating into three companies? Because you still run into down the road being a victim of your own success if things work out, that you're still going to have this kind of law of large numbers problem in a couple of years in terms of capital redeployment. Could you just talk through whether you thought about three or perhaps more entities from a separation perspective?
Well, we don't see this as something that's a function of, quote, "The law of large numbers." We see this really as an opportunity that's associated with capital deployment and strategic focus and coherence and clarity of the role and mission of each operating company. Yes, at the end of the day, do you have the opportunity to grow off a smaller base, either organically and inorganically? Sure, you do. That's not the fundamental issue here. That's not the catalyst for what we're trying to do here. We saw this particular structure as being the most logical structure and the most practical structure.
Okay. Just two brief follow-ups on Pall. One, maybe you could talk about the working capital opportunity there, because that's a big part of the equation that's probably not taken into account explicitly in the cost synergies. Number two, has there been any thought to Larry's role in the company going forward?
Rob, on the working capital front, we tend to find opportunities with the larger opportunities, larger companies, larger acquisitions, to bring in some of our best practices around managing inventory, collecting receivables, working the payable side, and we don't view this as any different than some of the other deals we've done over the last five years. I think we can bring some best practices in here that will help drive some cash and reduce our overall investment.
Relative to your question on Larry, I'll let Larry address that question, and we won't address that here today.
Thanks for your time.
Thank you.
Operator, we're ready for our next question, and that will be Charles Brady, BMO Capital Markets.
Hey, Charlie.
Hey. Good morning, guys. Apologize for my voice. I know it's early days on this, but I wonder if you look at the NewCo industrial company, if you could talk about kind of growth from M&A down the road that you layer on top of the mid-single digit organic. Any idea how much leverage on top of that you think you can get by having that separated out as its own piece?
Charlie, obviously it is early days, but one of the primary reasons we're doing this, as you alluded to, is to set that business back up to be in a position to pursue M&A. At a high level, what I think that does is they get back in the mode of doing smart bolt-ons, smart adjacencies, then get back to a position of driving their earnings at a double-digit rate. At a high level, that's what I think the simple frame would be.
Okay. Thanks.
That is all the time we have for our questions today, and that will conclude our question and answer session. Also, that will conclude today's conference call. Thank you for your participation.