FULLERTON — Beckman Instruments Inc. is taking the unusual step of paying up to $100 million to compensate some debt holders whose bonds lost value earlier this month when the company announced plans to acquire Miami-based Coulter Corp.
The Fullerton-based maker of medical diagnostic equipment announced Monday that, assuming the acquisition proceeds, it will make a tender offer for debentures sold last year.
The debentures, which carry a 7.05% coupon, are due in 2026.
Analysts say that, although the proposed $1.15-billion acquisition makes good business sense, it would jack up debt levels at the merged company to a high 90% of total capitalization--and the sudden debt load will erode values of outstanding bonds.
"Beckman has relationships with a wide variety of investors and would like to maintain them," said Paul Glyer, the company's treasurer.
Though analysts say companies usually let prices on their bonds fall as they may, Glyer added that the tender offer is intended to help create more "goodwill" with bondholders.
He said the company hasn't set terms for the tender yet. It hopes to regain an investment grade by 1999, he said.
The company also said Monday that it will issue about $400 million in new debt securities to fund the tender offer and reduce other borrowings.
Shortly after the announcement Monday, Standard & Poor's Corp. said it was lowering its ratings on Beckman's debt to below investment grade, effectively blocking the company from financing sources that put money only in better-rated bonds.
The agency cut its overall corporate rating on Beckman by five notches, from A to BB plus. Analysts noted that while the Coulter deal will give the new company a stronger business position in the marketplace, it will greatly diminish its financial flexibility.
Analysts said the company's management faces the challenge of executing an ambitious strategy of merging the two entities at a time when competition is strong and the industry is rapidly consolidating. Though Beckman and Coulter both enjoy top shares in separate niches of the market, together the two will rank only fifth in size in their overall market, analysts said.