NetScout Systems Inc. (NTCT) - Get NetScout Systems, Inc. Report plans to acquire the communications business of Danaher Corp. (DHR) - Get Danaher Corporation Report in a $2.6 billion deal that would expand NetScout's cyber intelligence expertise.
Terms of the deal call for NetScout to swap 62.5 million of its shares for the unit in a deal structured as a Reverse Morris Trust transaction and expected to be tax-free for both companies. Post-deal Danaher would hold about 59.5% of the combined company, with the company planning to eventually spin or split the holding to shareholders.
Washington, D.C.-based Danaher, a $19 billion-sales collection of industrial and medical assets cobbled together under the watch of 1980s corporate raiders Steven and Mitchell Rales. The communications unit, which was assembled in part as part of Danaher's 2007 purchase of Tektronix Inc. for $2.8 billion, has annual sales of $836 million and more than 2,000 workers worldwide.
NetScout by comparison generated about $397 million in revenue in its fiscal year ended March 2014.
The businesses to be acquired include Plano, Texas-based Tektronix Communications, which provides network testing systems, as well as Burlington, Mass.-based network security firm Arbor Networks and network monitoring firm Fluke Networks of Everett, Wash.
Westford, Mass.-based NetScout, which makes network performance tools for corporate customers, said that the combination would allow it to offer a more complete set of products.
"This business combination will expand NetScout's global reach and help broaden our presence with customers in both the service provider and enterprise markets," NetScout co-founder and CEO Anil Singhal said in a statement. "In addition, it will jump-start our planned entry into the cyber intelligence market, particularly within the advanced persistent threat area."
Danaher CEO Thomas P. Joyce Jr. said that the deal is "the culmination of a multi-year discussion to work together with NetScout," arguing that the two companies combined are stronger than either was on its own.
"This is a powerful and unique opportunity to combine highly complementary businesses in a transaction that will benefit all Danaher and NetScout stakeholders, including shareholders, customers and associates," Joyce said. "We believe the combined company will be able to enjoy strong growth, drive further innovation and serve our customers in a more comprehensive way."
Danaher said it will retain Fluke's data cabling tools and carrier service provider tools businesses.
The deal is subject to NetScout shareholder approval and regulatory approvals including a ruling from the Internal Revenue Service on certain tax matters. Post-deal Danaher executive vice president James A. Lico will join NetScout's board.
RBC Capital Markets is acting as the financial adviser to NetScout, with Cooley LLP serving as primary counsel and Baker & McKenzie and Wilson Sonsini also advising.