Fresenius

(FMS) - Get Report

will soon become the uncontested superpower of the dialysis industry.

The German-based health care company has agreed to pay $3.5 billion for smaller rival

Renal Care

(RCI) - Get Report

. The transaction -- following on the heels of

DaVita's

(DVA) - Get Report

$3.1 billion buyout of Gambro -- will make Fresenius, once again, the largest dialysis provider in the world.

"Buying RCG will send shockwaves through the industry, as it will cement both FME's leading position in the U.S. and globally," Merrill Lynch analyst Andreas Schmidt wrote upon hearing Wednesday's news. "In combination ...

the companies will dominate the industry in the future."

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Fresenius is paying $48 a share -- a 22% premium over Renal Care's closing price on Tuesday -- to regain its position, briefly lost to DaVita, as the giant of the industry. The company's stock slipped 2.3% to $25.99 on news of the generous offer. Meanwhile, shares of Renal Care rocketed 17% to $46 on Wednesday morning.

Gary Brukardt, CEO of Nashville-based Renal Care, kicked off that celebration.

"This transaction demonstrates the value that Renal Care Group has built in the marketplace," he announced very early Wednesday. "It is a testament to the vision of our founders and the dedication and hard work of our associates and affiliated physicians during Renal Care Group's nine-year history that we have created this value and can now return it to our shareholders."

Together, the two companies last year generated $7.5 billion in revenue through their 2,000-plus dialysis clinics around the world. Renal Care contributed $1.35 billion of that amount and posted $122 million in annual profit.

Fresenius hopes to complete the deal by the middle of this year. It expects the transaction to be neutral to slightly accretive to earnings in 2006 and "clearly accretive" to earnings in 2007.

It is buying a company that ranks as a dominant force in the crucial U.S. market. And it highlighted that strength when announcing the deal.

"Renal Care Group Inc. is a fast-growing, highly profitable dialysis service provider that will be an attractive complement to Fresenius Medical Care's U.S. business," Fresenius said. Moreover, "Renal Care Group generates an industry-leading share of 43% of its revenue from private payors."

By now, both companies have come under scrutiny for their government-related business. Just last month, in fact, Fresenius fielded a fresh subpoena from federal prosecutors who are questioning the company's business practices. As a result, Fresenius said it would be turning over a "broad range of documents" about everything from its business development activities to its compensation for medical directors to its physician relationships and joint-venture arrangements.

That subpoena, issued by the U.S. attorney's office in St. Louis, came just five months after federal prosecutors in New York began questioning Fresenius about its operations. The company already has paid a big fine for allegedly violating government rules in the past.

For its part, Fresenius has expressed confidence in its compliance program and promised to cooperate with government authorities. But Patrick Burns, a spokesman for Taxpayers Against Fraud, insists that the entire dialysis sector remains plagued with serious problems.

Of course, analysts such as Schmidt sounded far more kind. Schmidt talked about the "many opportunities" created by the deal. Notably, he said, Fresenius will be acquiring dialysis clinics in regions where the company currently has little presence. Thus, he said, the acquisition will "dramatically" improve the company's negotiating power in those areas.

Schmidt even went a step further and complimented Fresenius's behavior, saying that the company will now have the power to push its "high standards" onto the industry overall.