DVA » Topics » Acquisition of Gambro Healthcare, Inc.

This excerpt taken from the DVA 10-Q filed Nov 8, 2005.

Acquisition of Gambro Healthcare, Inc.

 

On October 5, 2005, the Company completed its acquisition of Gambro Healthcare under the Stock Purchase Agreement dated December 6, 2004, for $3,055,000 subject to final price adjustments. Gambro Healthcare was one of the largest dialysis service providers in the United States. The purchase price reflects (i) the cash purchase price of approximately $1,800,000 for all of the outstanding common stock and (ii) the assumption and payment of approximately $1,255,000 of Gambro Healthcare indebtedness. The Company has also incurred approximately $12,000 in related acquisition costs through September 30, 2005, and additional transaction and severance costs will be incurred. In addition, if the Company makes an election pursuant to section 338(h)(10) of the Internal Revenue Code as permitted under the Stock Purchase Agreement, the Company would be required to make an additional cash payment to Gambro Inc., which the Company currently estimates at approximately $150,000 to $170,000. Immediately following the Company’s acquisition of Gambro Healthcare, Inc., the name of the newly-acquired subsidiary was changed to DVA Renal Healthcare, Inc.

 

The following table summarizes the Company’s initial estimate of the fair values of assets acquired and liabilities assumed at the date of acquisition, but excludes transaction costs. These valuations are preliminary, and the Company is currently in process of obtaining information necessary to determine these valuations, including obtaining third-party valuations of certain long-term assets, including intangible assets. As such, this preliminary purchase price allocation is subject to material change:

 

Current assets

   $ 500,000  

Property and equipment, net

     290,000  

Other long-term assets

     145,000  

Goodwill

     2,605,000  

Current liabilities—assumed

     (280,000 )

Product supply agreement

     (165,000 )

Other long-term liabilities

     (40,000 )
    


Total purchase costs

   $ 3,055,000  
    


 

The other long-term assets include an estimate of approximately $87,000 for a non-compete agreement with Gambro AB. The Alliance and Product Supply Agreement, discussed below, was estimated at approximately $(165,000). Of the total amount of goodwill, approximately $350,000 is expected to be deductible for tax purposes over the next 15 years.

 

The operating results of DVA Renal Healthcare, Inc. (formerly known as Gambro Healthcare, Inc.) will be included in the Company’s financial statements beginning in October 2005.

 

In conjunction with the acquisition, the Company assumed all of Gambro Healthcare’s debt obligations, consisting principally of intercompany debt paid at closing, as well as its commitments associated with operating

 

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DAVITA INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

 

leases, letters of credit and investments in third-party dialysis businesses in the form of put options. These put option obligations are exercisable at the minority owners’ discretion, and require the Company to purchase the minority owners’ interest at either the appraised fair market value or a predetermined multiple of cash flow, earnings, or revenues. At the date of acquisition, Gambro Healthcare had total operating lease commitments of approximately $345,000 expiring within the next 10 years, letters of credit of approximately $27,000, and total potential obligations under the put options of approximately $30,000, all of which were exercisable within one year.

 

In conjunction with the acquisition, the Company entered into an Alliance and Product Supply Agreement (the Supply Agreement) with Gambro AB and Gambro Renal Products, Inc. The Supply Agreement has an initial term of seven years and will automatically renew for three additional one-year periods, if the Company has not negotiated the terms of an extension during the initial term period. Under the Supply Agreement, the Company is committed to purchase a significant majority of its hemodialysis products, supplies and equipment at fixed prices. For the twelve months ended December 31, 2004 and for the first nine months of 2005, the Company’s total spending on such items was approximately 8% of its total operating costs. Because the Supply Agreement will result in higher costs for most of the products covered by the Supply Agreement than would be otherwise available to the Company, the Supply Agreement represents an intangible liability valued at $165,000, which will be amortized over the term of the Supply Agreement.

 

In accordance with a consent order issued by the Federal Trade Commission on October 4, 2005, the Company was required to divest a total of 69 outpatient dialysis centers and to terminate two management services agreements. In conjunction with the consent order, on October 6, 2005, the Company and Gambro Healthcare completed the sale of 70 outpatient renal dialysis centers to Renal Advantage Inc., formerly known as RenalAmerica, Inc. The sale of an additional three centers, also to Renal Advantage, will be made upon receipt of Illinois State regulatory approval. The Company also completed the sale of one other center to a separate physician group, and terminated two management services agreements. The Company is receiving total cash consideration of approximately $328,000 for all of the centers being divested, subject to post-closing adjustments, taxes on the sale of approximately $95,000 and the purchase of the minority interest ownership at several centers that were part of a joint venture. As part of this transaction, Renal Advantage will assume specified liabilities related to the centers and all other liabilities will be retained by the Company.

 

The total number of centers being divested account for approximately 6% of 2004 annual revenues pro forma for the Gambro Healthcare acquisition. The centers sold will be accounted for as discontinued operations beginning in the fourth quarter of 2005. As a result of the divestitures in the fourth quarter of 2005, the Company expects to reduce its income tax valuation allowance relating to prior years’ capital losses. Any such valuation adjustments will not affect cash flow due to an alternative tax strategy previously implemented.

 

This excerpt taken from the DVA 10-Q filed Jul 29, 2005.

Acquisition of Gambro Healthcare, Inc.

 

On December 6, 2004, the Company entered into a stock purchase agreement to acquire the common stock of Gambro Healthcare, one of the largest dialysis service providers in the United States for a purchase price of approximately $3,050,000 in cash. Gambro Healthcare has annual revenues of approximately $2,000,000 and as of June 30, 2005, operated 566 outpatient dialysis centers. The purchase price reflects (i) a cash purchase price of approximately $1,700,000, which we refer to as the cash purchase price, and (ii) the assumption of Gambro Healthcare indebtedness, which indebtedness was approximately $1,300,000 on December 31, 2004 (nearly all of which is intercompany debt). The Company will be required to repay the Gambro Healthcare intercompany debt, including accrued interest, simultaneously with the closing of the Gambro Healthcare acquisition. Under the stock purchase agreement, the cash purchase price increases from December 6, 2004 to the acquisition closing date by 4% per annum for the first 90 days after signing and 8% per annum thereafter. The amount of Gambro Healthcare intercompany debt will increase by the amount of any additional cash contributed by Gambro, Inc. to Gambro Healthcare after December 6, 2004 and will be reduced by operating cash flow applied to the intercompany debt after December 6, 2004. Gambro, Inc. may contribute cash to Gambro Healthcare as required to cover cash operating and other expenses, including the payment of $15,000, plus interest, which amount was paid to settle claims of certain state Medicaid programs. The intercompany debt bears interest at a rate of 1% above the twelve-month LIBOR. The Company anticipates that Gambro Healthcare’s cash flow during that period and its other cash-on-hand, which the Company will be acquiring in the acquisition, will substantially offset any increase in the cash purchase price and the amount of intercompany debt that must be repaid at the closing and interest thereon. In addition, the Company will be required to pay additional amounts to Gambro, Inc. to the extent that the Company makes certain tax elections with respect to the acquisition. The Company will also enter into a ten-year product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB, to provide a significant majority of our dialysis equipment and supplies. The stock purchase agreement contains a number of conditions which must be satisfied or waived prior to the closing of the acquisition. These conditions include, among others, receipt of regulatory approvals, including antitrust clearance.

 

On February 18, 2005, the Company received a second request from the Federal Trade Commission (FTC) for additional information in connection with the pending acquisition of Gambro Healthcare. This request extended the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after the Company and Gambro Healthcare have substantially complied with the request, unless that period is voluntarily extended by the parties. The Company has reached a preliminary agreement with the FTC staff to divest approximately 70 DaVita and Gambro Healthcare centers, which represents approximately 6% of the combined number of centers and revenues. The Company is nearing completion with the FTC on the contents of a consent order. On July 28, 2005, the Company and Gambro Healthcare entered into a definitive agreement with RenalAmerica, Inc. to sell 70 centers to RenalAmerica. The purchase price for the centers is approximately $320,000, subject to post-closing adjustments, payable by RenalAmerica in cash at closing. The Company will use a portion of the purchase price to pay anticipated income taxes of approximately $90,000 related to this transaction. As part of this transaction, RenalAmerica will assume specified liabilities related to the centers and all other liabilities will be retained by the Company. Completion of the sale of the centers to RenalAmerica is subject to certain closing conditions, including consummation of the Company’s acquisition of Gambro Healthcare. The Company expects to complete the sale of the centers to RenalAmerica and the acquisition of Gambro Healthcare contemporaneously, which the Company expects will be during the next thirty to sixty days. The Company cannot assure you that the divestitures will be completed on these terms or at all.

 

The Company has secured commitments from certain financial institutions to provide new senior secured credit facilities in an aggregate amount of up to $3,150,000 in order to finance the Gambro Healthcare

 

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DAVITA INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

 

acquisition and to pay related fees and other costs. The new credit facilities are expected to consist of: 1) term loans aggregating up to $2,900,000, which will mature in 2011 and in 2012, and 2) a revolving line of credit of up to $250,000, which will mature in 2011. The Company expects that the new senior secured credit facilities will initially bear interest at LIBOR plus margins ranging from 2.00% to 2.25%. The new senior secured credit facilities will be guaranteed by substantially all of the Company’s direct and indirect wholly-owned subsidiaries and will be secured by substantially all of the assets of the Company and the guarantors. The new senior secured credit facilities are anticipated to contain certain limits and restrictions on business activity and will require quarterly compliance with certain financial covenants similar to those currently in effect on the Company’s existing credit facility. The Company expects that the new senior secured credit facilities will close simultaneously with the Gambro Healthcare acquisition.

 

This excerpt taken from the DVA 10-Q filed May 4, 2005.

Acquisition of Gambro Healthcare, Inc.

 

On December 6, 2004, the Company entered into a stock purchase agreement to acquire the common stock of Gambro Healthcare, Inc. or Gambro Healthcare, one of the largest dialysis service providers in the United States for a purchase price of approximately $3,050,000 in cash. Gambro Healthcare currently operates approximately 560 outpatient dialysis centers and has annual revenues of approximately $2,000,000. The purchase price reflects (i) a cash purchase price of approximately $1,700,000, which we refer to as the cash purchase price, and (ii) the assumption of Gambro Healthcare indebtedness, which indebtedness was approximately $1,300,000 on December 31, 2004 (nearly all of which is intercompany indebtedness). The Company will be required to repay the Gambro Healthcare intercompany indebtedness, including accrued interest, simultaneously with the closing of the Gambro Healthcare acquisition. Under the stock purchase agreement, the cash purchase price increases from December 6, 2004 to the acquisition closing date by 4% per annum for the first 90 days after signing and 8% per annum thereafter. The amount of Gambro Healthcare intercompany debt will increase by the amount of any additional cash contributed by Gambro Inc. to Gambro Healthcare after December 6, 2004 and will be reduced by operating cash flow applied to the intercompany debt after December 6, 2004. The intercompany debt bears interest at a rate of 1% above the twelve-month LIBOR.

 

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DAVITA INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

 

The Company will also enter into a ten-year product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB to provide a significant majority of our dialysis equipment and supplies. The stock purchase agreement contains a number of conditions which must be satisfied or waived prior to the closing of the acquisition. These conditions include, among others, receipt of regulatory approvals, including antitrust clearance.

 

On February 18, 2005, the Company received a second request from the Federal Trade Commission for additional information in connection with the pending acquisition of Gambro Healthcare. This request extends the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after the Company and Gambro Healthcare have substantially complied with the request, unless that period is voluntarily extended by the parties. The Company continues to be involved in active discussions with the Federal Trade Commission (FTC) staff regarding its planned acquisition of Gambro Healthcare, Inc. Although no agreement with the FTC has yet been reached, based on the Company’s discussions to date the Company expects it will be required to divest approximately 5% of the combined number of Gambro Healthcare and DaVita centers, which represents the same percentage of the combined revenues. However, the final resolution with the FTC could be materially different.

 

The Company has secured commitments from certain financial institutions to provide new senior secured credit facilities in an aggregate amount of up to $3,150,000 in order to finance the Gambro Healthcare acquisition and to pay related fees and other costs. The new credit facilities as outlined in the commitment letter are expected to consist of: 1) term loans aggregating up to $2,900,000, which will mature in 2011 and in 2012, and 2) a revolving line of credit of up to $250,000, which will mature in 2011. The new senior secured credit facilities will be guaranteed by substantially all of the Company’s wholly-owned subsidiaries and will be secured by all of the assets of the Company and the guarantors. The new senior secured credit facilities are anticipated to contain certain limits and restrictions on business activity and will require quarterly compliance with certain financial covenants similar to those currently in effect on the Company’s existing credit facility.

 

8.   Condensed consolidating financial statements

 

The following information is presented in accordance with Rule 3-10 of Regulation S-X. The operating and investing activities of the separate legal entities included in the consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services. The notes were issued through a private placement-offering memorandum on March 22, 2005 by DaVita Inc. and are guaranteed by substantially all of its wholly-owned subsidiaries. Each of the guarantor subsidiaries has guaranteed the senior notes and the senior subordinated notes on a joint and several, full and unconditional basis. Non-wholly-owned subsidiaries, joint ventures and partnerships are not guarantors of these obligations.

 

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DAVITA INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands, except per share data)

 

This excerpt taken from the DVA 10-K filed Mar 3, 2005.

Acquisition of Gambro Healthcare, Inc.

 

On December 6, 2004, the Company entered into an agreement to acquire the common stock of Gambro Healthcare, Inc. or Gambro Healthcare, one of the largest dialysis service providers in the United States. The purchase price of approximately $3.05 billion reflects (i) a cash purchase price of approximately $1.7 billion, which we refer to as the cash purchase price, and (ii) the assumption of Gambro Healthcare indebtedness, which indebtedness was approximately $1.3 billion on December 31, 2004 (nearly all of which is intercompany indebtedness). The Company will be required to repay the Gambro Healthcare intercompany indebtedness,

 

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DAVITA INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands, except per share data)

 

including accrued interest, simultaneously with the closing of the Gambro Healthcare acquisition. Under the stock purchase agreement, the cash purchase price increases from December 6, 2004 to the acquisition closing date by 4% per annum for the first 90 days after signing and 8% per annum thereafter. The amount of Gambro Healthcare intercompany debt will increase by the amount of any additional cash contributed by Gambro Inc. to Gambro Healthcare after December 6, 2004 and will be reduced by operating cash flow applied to the intercompany debt after December 6, 2004. The intercompany debt bears interest at a rate of 1% above the twelve-month LIBOR. In connection with the Gambro Healthcare acquisition the Company is assessing financing alternatives, which could include closing on some or all of the financing in advance of the closing of the acquisition. The Company will also enter into a ten-year product supply agreement with Gambro Renal Products Inc., a subsidiary of Gambro AB, pursuant to which the Company will purchase from Gambro Renal Products specified percentages of its requirements for hemodialysis products, supplies and equipment at fixed prices. The stock purchase agreement contains a number of conditions which must be satisfied or waived prior to the closing of the acquisition. These conditions include, among others, receipt of regulatory approvals, including antitrust clearance.

 

On February 18, 2005, the Company received a request from the Federal Trade Commission for additional information in connection with the pending acquisition of Gambro Healthcare. This request extends the waiting period imposed by the Hart-Scott-Rodino Act until thirty days after the Company and Gambro Healthcare have substantially complied with the request, unless that period is voluntarily extended by the parties or is terminated sooner by the FTC.

 

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