Acquisitions

9 Months Ended

Oct. 02, 2020

ACQUISITIONS

For a description of the Company’s acquisition activity for the year ended December 31, 2019, reference is made to the financial statements as of and for the year ended December 31, 2019 and Note 3 thereto included in the Company’s 2019 Annual Report.

The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill arises because the purchase prices for these businesses reflect a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. In the months after closing, as the Company obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with its 2020 acquisitions (including the acquisition of Cytiva, as described below) and is also in the process of obtaining valuations of certain acquisition-related assets and liabilities in connection with these acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

On March 31, 2020, the Company acquired the Biopharma business of General Electric Company’s (“GE”) Life Sciences division, now known as Cytiva, for a cash purchase price of approximately $20.7 billion (net of approximately $0.1 billion of acquired cash) and the assumption of approximately $0.4 billion of pension liabilities (the “Cytiva Acquisition”). Cytiva is a leading provider of instruments, consumables and software that support the research, discovery, process development and manufacturing workflows of biopharmaceutical drugs. Cytiva is included in the Company’s Life Sciences segment results beginning in the second quarter of 2020. The acquisition has provided and is expected to provide additional sales and earnings growth opportunities for the Company’s Life Sciences segment by expanding the business’ geographic and product line diversity, including new product and service offerings that complement the Company’s current biologics workflow solutions. As a condition to obtaining certain regulatory approvals for the closing of the transaction, the Company was required to divest certain of its existing product lines in the Life Sciences segment that in the aggregate generated revenues of approximately $170 million in 2019. On April 30, 2020, the Company completed the sale of these product lines for a cash purchase price, net of cash transferred and transaction costs, of $826 million and recognized a pretax gain on sale of $455 million ($305 million after-tax or $0.42 per diluted common share) in the second quarter of 2020. The divestiture of these product lines did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore will not be reported as a discontinued operation.

The Company financed the Cytiva Acquisition with approximately $3.0 billion of proceeds from the March 1, 2019 underwritten public offerings of its Common Stock and Series A Mandatory Convertible Preferred Stock (“MCPS Series A”), approximately $10.8 billion of proceeds from the 2019 issuance of euro-denominated and U.S. dollar-denominated long-term debt, and approximately $6.9 billion from the aggregate of proceeds from commercial paper borrowings, borrowings under the Company’s Five-Year Facility (as defined below) and cash on hand. The Company preliminarily recorded approximately $10.2 billion of goodwill related to the Cytiva Acquisition.

In addition to the Cytiva Acquisition, during the nine-month period ended October 2, 2020, the Company acquired one other business for total consideration of $104 million in cash, net of cash acquired. The business acquired complements an existing unit of the Environmental & Applied Solutions segment. The Company preliminarily recorded an aggregate of $95 million of goodwill related to this acquisition.

The aggregate annual sales of the two businesses acquired in 2020 at the time of their acquisition, in each case based on the companies’ revenues for its last completed fiscal year prior to the acquisition, were approximately $3.3 billion. The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the nine-month period ended October 2, 2020 ($ in millions):


	Cytiva		Other		Total
Trade accounts receivable	$	481.7	$	1.4	$	483.1
Inventories	939.2		—		939.2
Property, plant and equipment	688.8		—		688.8
Goodwill	10,206.7		94.7		10,301.4
Other intangible assets, primarily technology, customer relationships and trade names	10,655.5		16.4		10,671.9

Trade accounts payable	(248.8)		(0.4)		(249.2)
Pension liabilities	(422.8)		—		(422.8)
Deferred tax liabilities	(1,196.5)		—		(1,196.5)
Other assets and liabilities, net	(389.1)		(8.3)		(397.4)



Net cash consideration	$	20,714.7	$	103.8	$	20,818.5

Pro Forma Financial Information

The unaudited pro forma information for the periods set forth below gives effect to the 2020 and 2019 acquisitions as if they had occurred as of January 1, 2019. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions, except per share amounts):


	Three-Month Period Ended						Nine-Month Period Ended
	October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019
Sales	$	5,895.2	$	5,113.7	$	16,343.9	$	15,247.8
Net earnings from continuing operations	1,064.0		719.7		2,574.1		1,545.0
Diluted net earnings per common share from continuing operations ^(a)	1.41		0.96		3.46		2.04

^(a)Diluted net earnings per common share from continuing operations is calculated by adding the interest on the Company’s LYONs to net earnings from continuing operations and deducting the MCPS dividends from net earnings from continuing operations.

The 2019 unaudited pro forma sales and net earnings set forth above were adjusted to include the pretax impact of $43 million and $480 million for the three and nine-month periods ended September 27, 2019, respectively, of non-recurring acquisition date fair value adjustments to inventory and deferred revenue related to the Cytiva Acquisition. The 2020 unaudited pro forma sales and net earnings from continuing operations were adjusted to exclude the impact of these items.

In addition, acquisition-related transaction costs of $30 million for the three-month period ended September 27, 2019 and $59 million and $63 million for the nine-month periods ended October 2, 2020 and September 27, 2019, respectively, associated with the Cytiva Acquisition were excluded from pro forma net earnings from continuing operations. The pretax gain of $455 million ($305 million after-tax or $0.42 per diluted common share) for the nine-month period ended October 2, 2020 related to the divestiture of certain product lines that was required as a condition to obtaining certain regulatory approvals for the closing of the Cytiva Acquisition was also excluded from the 2020 pro forma net earnings from continuing operations.