October 13, 2014 / 1:11 PM / 3 years ago

Danaher to combine communications unit with NetScout

(Reuters) - U.S. healthcare technology group Danaher Corp is combining its communications unit with NetScout Systems Inc, scaling up the business at a time when companies are spending aggressively on cybersecurity.

Danaher shareholders will get NetScout shares worth $2.6 billion, giving them majority stake in the company, while NetScout will have operational control.

Danaher’s communications business sells cybersecurity products and tools to manage networks, while NetScout makes products that monitor software applications on networks.

Danaher’s technology will help jump start NetScout’s cyber security efforts, NetScout CEO Anil Singhal said, noting that the deal comes after five years of talks with Danaher.

Cybersecurity has become a hot area in the face of increasingly sophisticated attacks and companies are spending more on internet security to prevent breaches.

“(Danaher’s communications) business needed a broader set of growth drivers as well as scale, and NetScout made for an excellent partner,” ISI Group analyst Ross Muken wrote in an email.

The combination is structured as a Reverse Morris Trust transaction, which allows a company to sell a unit in a tax-efficient manner by merging it with a smaller company.

Danaher will create a wholly owned subsidiary to hold its communications business and will distribute ownership of the business to its shareholders.

Under the deal, NetScout will issue 62.5 million new shares to Danaher’s shareholders, giving them a stake of 59.5 percent in the combined company. The rest will be owned by NetScout shareholders.

“Danaher’s shareholders don’t have much beyond voting capability. They control enough of the shares so they could replace board members but I don’t see that happening,” D.A. Davidson & Co analyst Mark Kelleher said.

Danaher’s communications business reported 2013 revenue of about $836 million.

NetScout had a market value of $1.72 billion as of Friday and reported revenue of $396 million for the year ended March 31.

The combined entity would have more than 3,000 employees, of which about 2,000 would come from Danaher.

The transaction will add to earnings in the first full year of operation after closing in 2015.

NetScout would continue to be led by CEO Anil Singhal, who owns more that 5 percent of the company.

NetScout shares were up 3 percent at $43.16 in early trading on Monday, while Danaher shares were up nearly 1 percent at $72.43.

Editing by Saumyadeb Chakrabarty

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