Waters to buy Becton unit in a $17.5 billion deal amid tariff pressures

Lab equipment maker Waters Corp WAT on Monday said it will buy a bioscience and diagnostics unit spun off from medtech provider Becton Dickinson BDX in a stock-and-cash transaction valued at $17.5 billion, expanding its scale in clinical and diagnostic applications.

Becton Dickinson, which had been underperforming in recent months and was targeted by activists, will exit a tariff-sensitive segment of diagnostics and biosciences while doubling down on core medtech, where it may have greater pricing power and a stronger domestic manufacturing base. The unit makes products used to detect infectious diseases and cancers.

Becton Dickinson shares rose 0.6% to close at $177.09 on Monday, despite the deal valuing the unit below the $30 billion rumored when BD disclosed plans to spin it off on February 5. Reaction was positive since analysts thought a deal had become less likely.

Becton shares have fallen 28% since then on manufacturing issues and on tariffs announced in April by U.S. President Donald Trump. The setbacks forced the company to lower its annual guidance in May, negatively affecting its valuation.

Waters outmaneuvered larger rivals by using a tax-efficient Reverse Morris Trust structure—a stock-based transaction only viable for buyers of similar size, a person close to the transaction said. While Thermo Fisher and Agilent Technologies are leaders in the sector, their size makes them too large to use a similar structure.

Waters will pay Becton shareholders $4 billion in cash—raised through debt—and the remainder in stock. Waters shareholders are expected to own approximately 61% of the combined company, while Becton's will hold around 39%. The new entity will trade under Waters’ stock symbol.

The deal is a bet that Becton shareholders will have better luck under the management of Waters Chief Executive Udit Batra, widely credited for orchestrating the $17 billion Merck KGaA MRCG.DE acquisition of Sigma-Aldrich in 2015.

The acquisition gives Waters, a provider of analytical technologies serving life sciences and diagnostics markets, greater scale. The company said it will double its total addressable market to about $40  billion, with a 5–7% annual growth rate, which analysts received well.

But its investors reacted with skepticism.

Waters shares fell nearly 14% to close at $304.18 on Monday, reflecting doubts over the complexity and execution risks associated with synergies and the deal's structure, according to JP Morgan.

The deal "leaves value creation dependent on the successful integration and execution by Waters management," said JP Morgan analyst Robbie Marcus.

Jefferies analysts echoed the sentiment, noting that the deal added complexity to Waters' once-clear growth strategy. But they also said Batra's experience lends credibility to the complex integration process ahead.

Becton was underperforming both revenue growth and margins and "can benefit from a more focused management," said Jeff Jonas, portfolio manager at Gabelli Funds, which owns shares of both BD and Waters Corp.

The Reverse Morris Trust structure allows a company to avoid a big tax bill by spinning off a unit that it wants to divest while simultaneously merging it with another company.