Business Context and Reporting Period
This Form 8-K, dated May 10, 2017, reports material events for Becton, Dickinson and Company (BD) related to its pending acquisition of C. R. Bard, Inc. (Bard). The filing details the execution of new debt facilities and equity offerings to finance the transaction, which closed on May 16, 2017.
Key Financial Metrics and Capital Structure
- Term Loan Facility: BD entered into a $2.25 billion three-year unsecured term loan facility. Proceeds are restricted to funding the Bard acquisition and associated fees.
- Revolving Credit Facility: BD established a new $2.25 billion senior unsecured revolving credit facility (expandable to $2.75 billion) expiring in May 2022. This includes a $100 million letter of credit subfacility.
- Common Stock Offering: BD issued and sold 14,025,000 shares of common stock (including full exercise of the underwriters' option).
- Preferred Stock Offering: BD issued 49,500,000 depositary shares (representing 1/20th interest each) of 6.125% Mandatory Convertible Preferred Stock, Series A (including full exercise of the underwriters' option).
- Interest Rates: Term loan rates are Eurodollar plus 112.5 to 200 basis points or Base Rate plus 12.5 to 100 basis points, dependent on credit ratings.
Material Changes and Covenants
The filing introduces significant changes to BD's capital structure and debt covenants to accommodate the Bard merger:
- Debt-to-EBITDA Covenant: The new facilities impose a maximum Debt-to-EBITDA ratio of 6.00:1.00 for the first fiscal quarter post-closing, stepping down to 5.75:1.00, 5.25:1.00, and finally 4.50:1.00 (Term Loan) or 3.75:1.00 (Revolving) in subsequent periods.
- Interest Coverage Covenant: BD must maintain a consolidated EBITDA to interest expense ratio of not less than 4.00:1.00.
- Preferred Stock Restrictions: The issuance of Mandatory Convertible Preferred Stock restricts dividends on common stock and parity stock until preferred dividends are paid. It also grants preferred holders priority in liquidation.
- Conversion Terms: The preferred stock will automatically convert to common stock on May 1, 2020, at a ratio between 4.7214 and 5.6657 shares of common stock per preferred share.
Guidance, Risks, and Management Commentary
The filing contains forward-looking statements regarding the anticipated benefits of the Bard acquisition, including estimated synergies and the timing of completion. Management highlights several material risks:
- Transaction Completion: Risks regarding obtaining shareholder and regulatory approvals, and unforeseen liabilities.
- Integration: Challenges in integrating Bard's operations and realizing anticipated synergies within the expected timeframe.
- Financing: Risks related to accessing financing for refinancing debt on reasonable terms.
- Market Conditions: Fluctuations in interest rates, foreign currency exchange rates, and healthcare reimbursement rates.
- Legal and Regulatory: Potential litigation outcomes and the ability to obtain necessary regulatory product registrations.
Investor Verification Checklist
- Verify the final closing date and total proceeds received from the Common Stock and Depositary Shares offerings.
- Confirm the actual drawdown amount on the $2.25 billion Term Loan Facility and the utilization of the Revolving Credit Facility.
- Monitor the combined company's ability to meet the initial 6.00:1.00 Debt-to-EBITDA covenant in the first fiscal quarter post-merger.
- Review the upcoming Proxy Statement/Prospectus (Form S-4) for detailed terms of the Bard merger and voting requirements.
- Track the conversion ratio of the Mandatory Convertible Preferred Stock as the May 1, 2020, mandatory conversion date approaches.