Danaher Corporation Comments on Hexagon's Revised Offer for Leica Geosystems
16 August 2005 - 9:02PM
PR Newswire (US)
WASHINGTON, Aug. 16 /PRNewswire-FirstCall/ -- Danaher Corporation
("Danaher") acknowledges the announcement yesterday by Hexagon AB
("Hexagon") of a revised offer for Leica Geosystems Holdings AG
("Leica"). Danaher confirms that its CHF500 per share all cash
offer for Leica remains open for acceptance. Danaher believes it is
important for Leica shareholders to consider the following points
in assessing the real value of Hexagon's revised offer: --
Hexagon's revised offer depends considerably on the uncertain value
of Hexagon's shares. Hexagon has offered for each Leica share
CHF440 in cash plus 5 Hexagon B shares that it valued in its
announcement at CHF133, based on Hexagon's 12 August 2005 closing
share price of SEK159 per share. However, the actual value of the
Hexagon shares offered to Leica shareholders is uncertain and
unpredictable. It is important to note that the 12 August share
price is 10% higher than the Hexagon closing share price on 10 June
the day preceding their initial offer for Leica (SEK144), 5% higher
than the 15 August closing share price of SEK152 and 8% higher than
the average closing share price over the last thirty days of
SEK147. Given the illiquidity of the Hexagon shares (discussed
below), it is not clear that the trading price of the shares
represents their actual value. Even if the trading price did
reflect the actual value of the Hexagon shares, Hexagon's valuation
is based on a pre-announcement trading price that does not reflect
the terms and impact of the proposed transaction, including, inter
alia, the items discussed below. -- The market for Hexagon shares
is illiquid, which also raises questions about the actual value of
Hexagon shares. In the twelve months before Hexagon launched its
initial offer for Leica, the average daily trading volume in
Hexagon shares was approximately 42,000 shares, representing just
0.1% of Hexagon's share capital. The Hexagon shares proposed to be
issued to Leica shareholders represent 298 days' trading, based on
this average. It is not clear that the market capacity for Hexagon
shares will provide sufficient liquidity for any considerable
purchases or sales of Hexagon shares. The lack of a strong, liquid
trading market for Hexagon shares also raises questions about the
actual value of Hexagon shares. -- Following completion of the
offer, Hexagon will be highly leveraged. Based on the 30 June 2005
balance sheets of Leica and Hexagon, Danaher estimates that
(excluding any proceeds from a disposal of Hexagon's Automation
division) Hexagon would have net borrowings of around CHF1.6
billion if its offer were to succeed. This is roughly the same
amount as its current market capitalization and would represent a
debt-to- total book capitalization ratio for the combined companies
of approximately 68%. These borrowings would represent a multiple
of approximately 5.3 times Hexagon and Leica's pro forma earnings
before depreciation, interest and tax (EBITDA) for the twelve
months ended 30 June 2005 (based on the reported numbers excluding
exceptional items for Leica and Hexagon and before adjusting for
any proceeds from a disposal of the Automation Division of
Hexagon). Even assuming that Hexagon were to successfully
consummate its proposed CHF400-500 million rights issue following
the offer, Hexagon would still have leverage of approximately
3.7-4.0 times pro forma EBITDA, calculated on the same basis. In
Hexagon's 15 August 2005 presentation, Hexagon purports to show
what its shares could be worth should its multiple re-rate towards
the multiples of two industry peers, Trimble Navigation and Faro
Technologies. This analysis should be seriously questioned, as both
Trimble and Faro are not nearly as leveraged and therefore have
different risk profiles and enjoy greater strategic flexibility
than would a combined Hexagon-Leica organization. Leica
shareholders should question (1) how this leverage is taken into
account in Hexagon's forecasts of future performance, (2) whether
Hexagon's lenders have imposed obligations on Hexagon to reduce its
bank debt and the timetable for such reductions, and (3) the
adverse effect that the proposed acquisition and the leverage may
have on Hexagon's dividend policy. -- Hexagon has not disclosed how
a failure to consummate the proposed rights offering would impact
its ongoing operations following the offer or the adverse
consequences associated with a successful completion of the rights
offering. Hexagon has not indicated how a failure to consummate the
proposed rights offering would impact ongoing operations following
the offer. Hexagon has stated that it intends to carry out a rights
issue of CHF400-500 million following the offer. To avoid dilution,
Leica shareholders would effectively be required to reinvest up to
CHF37 per Leica share into newly issued Hexagon shares in the
rights issue. This effectively reduces the cash element of
Hexagon's proposed offer to around CHF403-410 per share. Leica
shareholders should understand (1) the extent to which existing
Hexagon shareholders support a rights issue, (2) whether Hexagon's
lenders have imposed a fixed timeline for consummation of such a
rights issue, (3) the implications for Hexagon's ongoing business
if the proposed rights issue were to fail, and (4) the terms and
potential dilutive effect of the proposed rights issue if it were
to succeed. -- The purported value of Hexagon's revised offer is
based substantially on future promises. Hexagon's presentation
includes pro forma forecasts for 2005, 2006 and 2007 but does not
disclose any underlying, supporting data. Moreover, it does not
appear that any of these forecasts or any of the underlying
valuation metrics have been independently verified. Leica
shareholders should understand the assumptions that underpin the
value of Hexagon's revised offer and assess whether these
assumptions can be substantiated. In addition, Leica shareholders
should closely scrutinise Hexagon's plans for achieving its
forecasted growth, synergies and re-rating given the leverage
proposed for the enlarged group and the risks inherent in
integrating such a large acquisition. -- Leica shareholders are
receiving Hexagon B shares with reduced voting rights. Messrs
Schorling and Sundqvist will continue to control Hexagon. Were
Hexagon's offer to succeed, Leica shareholders would own a 17.9%
economic interest in Hexagon, but only a 12.7% voting interest.
Messrs Schorling and Sundqvist will continue to control Hexagon due
to ownership of Hexagon A shares, each of which carries 10 times
the voting rights of a B share. Leica shareholders should
understand why Hexagon has not offered Leica shareholders voting
rights proportional to their proposed economic ownership in
Hexagon. Notes: (1) Exchange rate of CHF1:SEK5.9956 used as
assumption throughout (2) Hexagon's shareholdings were extracted
from its Public Tender Offer document for Leica dated 27 June 2005
(3) Trading data for Hexagon's shares has been extracted from
Datastream Danaher Corporation is a leading manufacturer of
Professional Instrumentation, Industrial Technologies, and Tools
and Components. (http://www.danaher.com/) This announcement does
not constitute an offer to sell or an invitation to purchase or
subscribe for any securities or the solicitation of an offer to buy
or subscribe for any securities pursuant to the Danaher offer or
otherwise. Reference is made to the Danaher offer prospectus and
supplement by and on the terms of which the Danaher offer is being
made. Terms and expressions defined in the Danaher offer prospectus
apply in this announcement unless otherwise stated. The release,
publication or distribution of this announcement in certain
jurisdictions may be restricted by law and therefore persons in any
such jurisdictions into which this announcement is released,
published or distributed should inform themselves about and observe
such restrictions. Statements in this document regarding the
proposed transaction between Leica and Danaher, the expected
timetable for completing the transaction and any other statements
about future expectations, beliefs, goals, plans or prospects
constitute forward looking statements within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Any
statements that are not statements of historical fact should also
be considered to be forward looking statements. There are a number
of important factors that could cause actual results or events to
differ materially from those indicated by such forward looking
statements, including the ability to consummate the transaction and
the other factors described in Danaher's Annual Report on Form 10-K
for the year ended December 31, 2004 and its most recent quarterly
report filed with the SEC. Danaher disclaims any intention or
obligation to update any forward looking statements as a result of
developments occurring after the date of this release. DATASOURCE:
Danaher Corporation CONTACT: Andy Wilson, Vice President, Investor
Relations of Danaher Corporation, +1-202-828-0850, Fax:
+1-202-828-0860; or In Zurich: Steven Loepfe of Peter Butikofer
& Company AG, +41-44-447-12-12, Fax: +41-44-447-12-92 Web site:
http://www.danaher.com/
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