Danaher (DHR) has announced an exchange offer for shares of Envista Holdings (NVST), the dental services and supplies company recent spun off from Danaher. After Envista’s September IPO Danaher still held 80.6% of Envista shares. The exchange offer would allow owners of Danaher shares to exchange them for shares of Envista. And it would allow Danaher to reduce its holdings in Envista.
The exchange offer closes on December 13.
The offer is structured to provide a 7% discount for anyone who exchanges shares, subject to an upper limit of 5.5784 shares of Envista for each share of Danaher exchanged. (The exact ratio of the exchange will depend on the market price for the shares during the three consecutive trading days ending on and including the second trading day preceding the expiration of the offer–that is December 9, 10, and 11. In other words if the upper limit isn’t in effect each $100 of Danaher stock would exchange for $107.53 in Envista stock.)
A couple of caveats to that 7% discount.
First, Danaher has received a waiver of the usual 180-day lock up for the sale of any Envista shares it still owns after the exchange. As I read it, Danaher would be able to sell any or all of its Envista shares immediately after the exchange closes, which would depress the Envista price. If you’re thinking about this as a very short-term trade designed to reap that 7% discount, you would be advised to get out quickly. (Danaher has a track record of being very smart about this kind of financial restructuring. I doubt they’re leaving a lot of cash on the table.)
Second, as I read Danaher’s strategy behind spinning off its dental businesses to begin with, it’s an effort to increase the multiple that Danaher gets on its water and life sciences units by splitting off a solid but slower growing business. If that strategy works, Danaher’s stock should  gain as the price-to-earnings multiple investors are willing to pay for a purer pure water play increases. Envista to me looks like a very solid but more slowing growing stock than Danaher.
The final exchange ratio showing the number of shares of Envista common stock that Danaher stockholders participating in the exchange offer will receive for each share of Danaher common stock accepted for exchange, including whether the upper limit is in effect, will be announced by press release no later than 5:30 p.m., New York City time, on the second trading day immediately preceding the expiration date of the exchange offer. The exchange offer will expire at 12:00 midnight, New York City time, at the end of the day on December 13, 2019, unless terminated or extended.
Danaher is a member of my Jubak Picks Portfolio. The shares are up 71.21% since I added them to that portfolio on June 20, 2017.
