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Rating Action:

Moody's changes outlook on Danaher to negative on Pall Corp acquisition; affirms A2, P-1 ratings

13 May 2015

New York, May 13, 2015 -- Moody's Investors Service affirmed its ratings of Danaher Corporation ("Danaher"): A2 Senior Unsecured and Prime-1 Short-Term following the company's announcement that it has reached an agreement to acquire the Pall Corporation for $13.8 billion. Danaher plans to issue more than $10 billion of debt to fund the purchase and will assume Pall's debt, aggregating $1.2 billion and garner the target's $1.0 billion of cash. Subsequent to the acquisition, management also plans on splitting the company into two independent, publicly-traded companies. The surviving Danaher entity will focus on the science and technology sectors, with the spin-off operations concentrating on industrial product markets. Moody's changed the rating outlook to negative. Danaher expects the transaction to close before December 2015 and the spin-off to occur near or at the end of 2016.

Affirmations:

..Issuer: Danaher Corporation

....Senior Unsecured Conv./Exch. Bond/Debenture, Affirmed A2

....Senior Unsecured Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debentures, Affirmed A2

..Issuer: Danaher Luxembourg Finance S.A.

....Senior Unsecured Commercial Paper, Affirmed P-1

Outlook Actions:

..Issuer: Danaher Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Danaher Luxembourg Finance S.A.

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

The negative outlook contemplates the higher financial risk from funding the acquisition entirely with debt and the potential for some challenges in the integration of Pall. The negative outlook also recognizes the uncertainty regarding how the planned spinoff of the industrial product operations will affect the business profile, financial policies, and capitalization of Danaher. Moody's believes that commercial paper could represent a significant portion of the acquisition debt, increasing the company's reliance on short term funding well above historical levels and increasing financial risk in the near term. The negative outlook further considers the potential for the pace of improvement in credit metrics to trail the company's expectations. This pace of improvement could be delayed if demand across Danaher's product and service lines underperform expectations or if the spin-off of the industrial products businesses and the resulting capital structure of Danaher do not proceed as planned. Moody's expects that the spin-off will afford the surviving Danaher with a less cyclical portfolio of businesses, and will also enable the company to significantly reduce acquisition-related debt.

Moody's affirmed the ratings primarily because of Danaher's demonstrated history of maintaining a conservative capital structure while significantly growing via acquisitions. The Pall acquisition will be the company's largest transaction yet, about double the size of the 2011 Beckman-Coulter acquisition. Pro forma credit metrics will weaken relative to the medians of the single-A rating category with the almost tripling of funded debt at closing. However, Moody's expects Danaher to progressively restore credit metrics to levels that support the A2 rating during the 18 months following closing, mainly from free cash flow generation.

Maintaining a healthy liquidity profile will be important to alleviate any downwards ratings pressure should Danaher increase reliance on short-term debt for the acquisition funding. Moody's expects the company to appropriately size the credit lines that back up its issued commercial paper to maintain a strong liquidity position if its reliance on short-term funding increases.

According to Danaher, the split will provide the new company housing Danaher's industrial product lines the opportunity to more aggressively pursue acquisitive growth, rather than competing for capital with the retained science and technology business lines. Moody's expects Danaher to retain its Diagnostics, Dental, Life Sciences, Water and Product Identification businesses. The new company will likely gain Test & Measurement, Industrial Technologies and some of the Environmental products segments. Danaher sees significant strategic benefits in Pall's filtration technologies, with its high recurring component of total revenues and applications across a broad set of verticals. Pall's life sciences product lines will enhance the market position of Danaher's Life Sciences operations, expanding this segment's consumables revenues and contributing to profit margin expansion.

The planned spin-off will reduce the diversification of Danaher's product and services portfolio. Nevertheless, Moody's believes that retaining less-cyclical businesses with higher components of recurring revenue will mitigate any potential market and financial risks of a less diversified product and services portfolio. Additionally, although the retained businesses will have a focus on health care, these businesses are minimally exposed to changing reimbursement policies by insurers or from government regulations.

Demonstrating de-leveraging of the capital structure subsequent to the closing of the acquisition will be important for limiting downwards pressure on the ratings. Doing so would strengthen credit metrics, moving projected Debt to EBITDA towards 2.3 times and projected EBITA to Interest towards 11 times, levels supportive of the A2 rating and on their way back to pre-announcement levels. We expect that Danaher will manage its acquisition and shareholder return strategies in a manner that enables it to achieve significant deleveraging following the acquisition. The valuation of the spin-off company and its capital structure will be an important source of liquidity for Danaher, which it could use to further de-leverage the post-acquisition balance sheet.

The ratings could be downgraded if credit metrics do not show steady improvement in 2016. Debt to EBITDA being sustained above 2.5 times and EBITA to Interest being below 7.0 times could be problematic for the A2 rating. A significant inflow of cash that is used to repay debt, particularly short-term debt, could lead to a stabilization of the rating outlook.

Danaher Corporation ("Danaher") is a manufacturer with operations organized into five segments: Life Sciences & Diagnostics, Test & Measurement, Environmental, Industrial Technologies, and Dental. Principal end-markets include analytical and physical instrumentation, medical and dental products, motion and industrial sensors, automation controls, product identification, and aerospace and defense. Danaher's strategy calls for the use of cash, debt, and equity to fund acquisitions to augment organic growth. Revenue in 2014 was approximately $19.9 billion or about $21 billion when including the annual run-rate of completed acquisitions. Subject to completion of Danaher's proposed transaction with NetScout Systems, Inc., revenue in the Test & Measurement segment could decline by some 22% or $0.8 billion.

Pall Corporation ("Pall") is a leading provider of liquid and air filtration. The company reports in two operating segments: Life Sciences (Medical, Biopharmaceuticals and Food & Beverage) and Industrial (Process Technologies, Aerospace, and Microelectronics). We forecast revenue for the fiscal year ending July 2015 will reach about $3 billion with Industrial the slightly larger of the two segments and it will be geographically well diversified between Europe (about 40%), the Americas (30%), and Asia (30%).

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jonathan Root
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes outlook on Danaher to negative on Pall Corp acquisition; affirms A2, P-1 ratings
No Related Data.
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