Item 8.01. Other Events.
As previously announced, on September 1, 2021, Hill-Rom Holdings, Inc., an
Indiana corporation ("Hillrom"), Baxter International Inc., a Delaware
corporation ("Baxter"), and Bel Air Subsidiary, Inc., an Indiana corporation and
a direct wholly-owned subsidiary of Baxter ("Merger Sub"), entered into an
Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, among
other things, Merger Sub will be merged with and into Hillrom (the "Merger"),
with Hillrom surviving the Merger as a wholly owned subsidiary of Baxter. In
connection with the Merger Agreement, on October 20, 2021, Hillrom filed a
definitive proxy statement (the "Proxy Statement") with the U.S. Securities and
Exchange Commission (the "SEC").
Litigation Related to the Merger
As previously disclosed in the Proxy Statement, at that time, four lawsuits had
been filed in connection with the Merger. On October 4, 2021, a purported
Hillrom shareholder filed a lawsuit against Hillrom and the current members of
the board of directors of Hillrom (the "Hillrom Board") alleging that the
preliminary proxy statement filed by Hillrom on October 1, 2021 in connection
with the merger contained alleged material misstatements and/or omissions in
violation of federal law. The lawsuit is captioned O'Dell v. Hill-Rom Holdings,
Inc., et al., Case 1:21-cv-08171 and is pending in the United States District
Court for the Southern District of New York. On October 8, 2021, another lawsuit
was filed against the same defendants asserting similar claims. The lawsuit is
captioned Ciccotelli v. Hill-Rom Holdings, Inc., et al., Case 1:21-cv-08327 and
is pending in the United States District Court for the Southern District of New
York. On October 12, 2021, two additional lawsuits were filed by purported
Hillrom shareholders against the same defendants asserting similar claims; the
first lawsuit is captioned Osborne v. Hill-Rom Holdings, Inc., et al., Case
1:21-cv-08396 and is pending in the United States District Court for the
Southern District of New York, and also named a former member of Hillrom's board
of directors as a defendant; the second lawsuit is captioned Collins v. Hill-Rom
Holdings, Inc., et al., Case 1:21-cv-05699 and is pending in the United States
District Court for the Eastern District of New York.
Following the filing of the Proxy Statement with the SEC, six additional
lawsuits were filed in various federal courts in connection with the Merger
between October 25, 2021 and November 15, 2021. On October 25, 2021, a purported
Hillrom shareholder filed a lawsuit against Hillrom and the current members of
the Hillrom Board alleging that the Proxy Statement contained alleged material
misstatements and/or omissions in violation of federal law. The lawsuit is
captioned Leible v. Hill-Rom Holdings, Inc., et al., Case 1:21-cv-05681 and is
pending in the United States District Court for the Northern District of
Illinois. On November 3, 2021, a purported Hillrom shareholder filed suit
against the same defendants asserting similar claims. The lawsuit is captioned
Jeweltex Manufacturing Inc. Retirement Plan v. Hill-Rom Holdings, Inc., et al.,
Case 1:21-cv-09090 and is pending in the United States District Court for the
Southern District of New York. On November 11, 2021, a purported Hillrom
shareholder filed suit against the same defendants asserting similar claims. The
lawsuit is captioned Thompson v. Hill-Rom Holdings, Inc., et al., Case
1:21-cv-09330 and is pending in the United States District Court for the
Southern District of New York. On November 12, 2021, two additional lawsuits
were filed by purported Hillrom shareholders against the same defendants
asserting similar claims; the first lawsuit is captioned Dunphy v. Hill-Rom
Holdings, Inc., et al., Case 1:21-cv-09371 and is pending in the United States
District Court for the Southern District of New York; the second lawsuit is
captioned Whitfield v. Hill-Rom Holdings, Inc., et al., Case 2:21-cv-05004 and
is pending in the United States District Court for the Eastern District of
Pennsylvania. On November 15, 2021, a purported Hillrom shareholder filed suit
against the same defendants asserting similar claims. The lawsuit is captioned
Kent v. Hill-Rom Holdings, Inc., et al., Case 1:21-cv-09430 and is pending in
the United States District Court for the Southern District of New York.
These complaints generally allege, among other things, that the Proxy Statement
fails to disclose allegedly material information in violation of Sections 14(a)
and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated
thereunder. The alleged omissions relate to (i) certain financial projections of
Hillrom, (ii) certain financial analyses of Hillrom's financial advisors, and
(iii) certain statements regarding the process leading up to Hillrom's entry
into the Merger Agreement. Plaintiffs seek, among other things, to enjoin
Hillrom from consummating the Merger, or in the alternative, rescission of the
merger and/or compensatory damages, as well as attorney's fees.
A demand letter was also sent to Hillrom by a purported Hillrom shareholder on
October 26, 2021, alleging similar deficiencies in the Proxy Statement as those
noted in the above-referenced complaints.
--------------------------------------------------------------------------------
Additionally, on October 27, 2021, a purported Hillrom shareholder filed suit
against Hillrom, Baxter, and the current members of the Hillrom Board asserting
violations of Illinois state law based on allegedly misleading statements and
omissions in the Proxy Statement. The lawsuit, captioned Garfield v. Dempsey, et
al., Case No. 2021CH05430, is pending in the Circuit Court of Cook County,
Illinois, and seeks, among other things, to enjoin Hillrom from holding the
shareholder vote to approve the Merger.
Hillrom believes that the claims asserted in the above-described actions are
without merit and that no supplemental disclosure is required under applicable
law. However, in order to moot the unmeritorious disclosure claims, to avoid the
risk of the above-described actions delaying or adversely affecting the Merger
and to minimize the costs, risks and uncertainties inherent in litigation,
without admitting any liability or wrongdoing, Hillrom has determined to
voluntarily supplement the Proxy Statement as described in this Current Report
on Form 8-K. Nothing in this Current Report on Form 8-K shall be deemed an
admission of the legal necessity or materiality under applicable laws of any of
the disclosures set forth herein. To the contrary, Hillrom specifically denies
all allegations in the above-referenced actions, including allegations that any
additional disclosure was or is required, and believes that the supplemental
disclosures contained herein are immaterial.
Supplemental Disclosures
The following supplemental disclosures should be read in conjunction with the
Proxy Statement, which should be read in its entirety. To the extent that
information herein differs from or updates information contained in the Proxy
Statement, the information contained herein supersedes the information contained
in the Proxy Statement. All page references are to pages in the Proxy Statement,
and defined terms used but not defined herein have the meanings set forth in the
Proxy Statement. For clarity, new text within restated paragraphs (other than
tables) from the Proxy Statement are highlighted with bold, underlined text and
stricken-through text shows text being deleted to a referenced disclosure in the
Proxy Statement.
The section of the Proxy Statement entitled "The Merger-Background of the
Merger" is hereby supplemented as follows:
The following language is added to the last full paragraph on page 25 as
follows:
Over the years, in the ordinary course of business, as part of our ongoing
consideration and evaluation of our long-term strategic goals and plans, the
Hillrom Board and Hillrom's senior management have periodically reviewed,
considered and assessed our priorities, operations and financial performance, as
well as overall industry conditions, as they may affect those strategic goals
and plans. These periodic reviews have included, among other items, the
consideration of potential opportunities for business combinations, acquisitions
and other financial and strategic alternatives, as compared to the benefits and
risks of continued operation as a standalone company, and have sometimes
included outside financial and legal advisors.
The following language is added to the third full paragraph on page 26 as
follows:
Following receipt of the July 16 Letter, the Hillrom Board held a meeting by
videoconference on July 18, 2021 during which members of Hillrom's senior
management, representatives of Hillrom's financial advisor, Goldman Sachs, and
representatives of Hillrom's legal counsel, Wachtell, Lipton, Rosen & Katz
("Wachtell Lipton"), were present. Hillrom and the Hillrom Board selected
Goldman Sachs to serve as a financial advisor and Wachtell Lipton to serve as
our legal advisor in connection with the potential transaction due to, among
other things, their extensive experience in our industry, their familiarity with
our business and strategic objectives, and their qualifications and expertise in
similar transactions. At the meeting, Mr. Groetelaars described the July 16
Letter, which was provided to the Hillrom Board in advance of the meeting, as
well as the July 16, 2021 telephone call that he had received from Mr. Almeida
in connection with the July 16 Letter. The Hillrom Board discussed the proposal
contained in the July 16, 2021 Letter, including in the context of Hillrom's
standalone plan and the current economic environment. Representatives of
Wachtell Lipton provided an overview of the Hillrom Board's fiduciary duties in
the context of the Hillrom Board's consideration of a proposal to acquire
Hillrom. Representatives of Goldman Sachs provided an overview of the current
market landscape and Hillrom's performance, and described the actions that
Goldman Sachs could take, with the assistance of Hillrom's management, to assist
the Hillrom Board in assessing the proposal. The Hillrom Board discussed
potential next steps and directed management to work with Goldman Sachs and
Wachtell Lipton to evaluate the proposal from financial and legal perspectives.
--------------------------------------------------------------------------------
The following language is added as a new paragraph after the second full
paragraph on page 28 as follows:
On or around August 2, 2021, Hillrom and the Hillrom Board also retained BofA
Securities as an additional outside financial advisor. Hillrom and the Hillrom
Board determined to engage BofA Securities based on, among other things, its
overall reputation and significant general experience in the valuation of
businesses and securities in connection with mergers and acquisitions and
similar transactions, its reputation in the investment community, its
substantial knowledge of Hillrom, and the belief that having the benefit of BofA
Securities' advice as well as Goldman Sachs' advice would be in the best
interests of Hillrom and its shareholders.
The following language is added to the third full paragraph on page 28 as
follows:
Between August 1, 2021 and August 3, 2021, Hillrom and Baxter negotiated the
terms of a confidentiality agreement, with representatives of Wachtell Lipton
and Baxter's legal counsel, Sullivan & Cromwell LLP ("Sullivan & Cromwell"),
participating in such negotiations. On August 3, 2021, Hillrom and Baxter
entered into the confidentiality agreement, which included a customary
standstill provision that permitted Baxter to make confidential proposals to
acquire Hillrom as well as a customary fallaway provision that would permit
Baxter to make acquisition and other proposals relating to Hillrom and its
subsidiaries following certain specified events.
The section of the Proxy Statement entitled "The Merger-Opinion of Goldman Sachs
& Co. LLC" is hereby supplemented as follows:
The following language is added to the second full paragraph on page 36 as
follows:
In addition, Goldman Sachs calculated an implied equity value of Hillrom for
purposes of calculating the following multiples by multiplying the $156.00 in
cash per share of Hillrom common stock by a range of fully diluted outstanding
shares of Hillrom common stock of approximately 67.0 million to 67.2 million as
of August 26, 2021, as provided by the management of Hillrom and calculated
using the treasury stock method. Goldman Sachs then calculated an implied
enterprise value of Hillrom by adding to the implied equity value it calculated
(i) the net debt of Hillrom of approximately $1,860 million, as of June 30,
2021, pro forma for the incurrence of $375.0 million of incremental debt and use
of approximately $36.4 million of cash from Hillrom's balance sheet in
connection with the acquisition of Bardy Diagnostics, Inc. ("BardyDx"), in each
case as provided by the management of Hillrom, and (ii) the present value of the
contingent consideration payments (as described below) and the deferred FICA tax
payments (as described below).
The last paragraph on page 36 continuing on page 37 is amended and restated as
follows:
Discounted Cash Flow Analysis. Using the Hillrom Projections, Goldman Sachs
performed an illustrative discounted cash flow analysis on Hillrom. Using
discount rates ranging from 7.5% to 8.5%, reflecting estimates of Hillrom's
weighted average cost of capital, Goldman Sachs discounted to present value as
of June 30, 2021 (i) estimates of unlevered free cash flow for Hillrom for the
fourth quarter of fiscal year 2021 through the fourth quarter of the fiscal year
2031 as reflected in the Hillrom Projections and, (ii) a range of illustrative
terminal values for Hillrom, which were calculated by applying perpetuity growth
rates ranging from 1.0% to 2.0%, to a terminal year estimate of the unlevered
free cash flow to be generated by Hillrom of approximately $1,016 million, as
reflected in the Hillrom Projections (which analysis implied exit terminal year
next-twelve (12)-month ("NTM") EBITDA multiples ranging from 9.6x to 13.1x),
(iii) estimates of contingent consideration payments related to the acquisition
of BardyDx of approximately $21 million and $73 million, as provided by the
management of Hillrom and assumed at their direction to be paid in fiscal years
2022 and 2023, respectively (the "BardyDx contingent consideration payments"),
(iv) estimates of additional contingent consideration payments related to other
acquisitions of approximately $10.0 million, in aggregate, as provided by the
management of Hillrom and assumed at their direction to be paid at various times
during the forecast period for the discounted cash flow analysis (together with
the BardyDx contingent consideration payments, the "contingent consideration
payments") and (v) a deferred tax payment under the Federal Insurance
Contributions Act ("FICA") of approximately $10.8 million, as provided by the
management of Hillrom and assumed at their direction to be paid in each of
fiscal years 2021 and 2022 (the "deferred FICA tax payments"). Goldman Sachs
derived such discount rates by application of the Capital Asset Pricing Model,
which requires certain company-specific inputs, including the company's target
capital structure weightings, the cost of long-term debt, after-tax yield on
permanent excess cash, if any, future applicable marginal cash tax rate and a
beta for the company, as well as certain financial metrics for the United States
financial markets generally. The range of perpetuity growth rates was estimated
by Goldman Sachs utilizing its professional judgment and experience, taking into
account the Hillrom Projections and market expectations regarding long-term real
growth of gross domestic product and inflation. Goldman Sachs calculated such
NTM Adjusted EBITDA multiples using NTM Adjusted EBITDA as of September 30,
2031, as provided by the management of Hillrom.
--------------------------------------------------------------------------------
The first full paragraph on page 37 is amended and restated as follows:
Goldman Sachs derived ranges of illustrative enterprise values for Hillrom by
adding the ranges of present values it derived above. Goldman Sachs then
subtracted from the range of illustrative enterprise values it derived for
Hillrom the net debt of Hillrom of approximately $1,860 million as of June 30,
2021, pro forma for the acquisition of BardyDx, and the present value of the
contingent consideration payments and the deferred FICA tax payments, as
provided by the management of Hillrom, to derive a range of illustrative equity
values for Hillrom. Goldman Sachs then divided the range of illustrative equity
values it derived by the number a range of fully diluted outstanding shares of
Hillrom common stock of approximately 67.0 million to 67.1 million, as of August
26, 2021, as provided by the management of Hillrom and calculated using the
treasury stock method, to derive a range of illustrative present values per
share of Hillrom common stock ranging from $137 to $187, rounded to the nearest
dollar.
The second full paragraph on page 37 is amended and restated as follows:
Illustrative Present Value of Future Share Price Analysis. Goldman Sachs
performed an illustrative analysis of the implied present value of an
illustrative future value per share of Hillrom common stock. For this analysis,
Goldman Sachs used the Hillrom Projections for the fourth quarter of fiscal year
2021 and each of the fiscal years 2022 to 2024. Goldman Sachs first calculated
the implied values per share of Hillrom common stock as of September 30 for each
of the fiscal years 2021 to 2023, by applying enterprise value to NTM Adjusted
EBITDA multiples of 13.0x to 15.0x Adjusted EBITDA per share of Hillrom common
stock as of the end of each fiscal year from 2021 to 2023. These illustrative
multiple estimates were derived by Goldman Sachs utilizing its professional
judgment and experience, taking into account Hillrom's historical NTM Adjusted
EBITDA trading multiples over time, which multiples averaged 14.2x and 13.8x
over the three- and six-month periods ended August 30, 2021, respectively.
Goldman Sachs then discounted the derived values back to Hillrom's June 30, 2021
using an illustrative discount rate of 7.9%, reflecting an estimate of Hillrom's
cost of equity, including the present value of projected dividends paid, as
provided by the management of Hillrom. Goldman Sachs derived such discount rate
by application of the Capital Asset Pricing Model, which requires certain
company-specific inputs, including a beta for the company, as well as certain
financial metrics for the United States financial markets generally. This
analysis resulted in a range of implied present values per share of Hillrom
common stock of $109 to $155, rounded to the nearest dollar.
The second and third full paragraphs on page 38 are amended and restated as
follows:
The following table presents the results of this analysis, with dollars in
billions:
Enterprise
Value /
Announcement Enterprise LTM Adj.
Date Acquirer Target Value EBITDA
April 2017 Becton, C.R. Bard, Inc.
Dickinson and
Company $ 23.8 21.2x
April 2016 Abbott St. Jude
Medical, Inc. $ 30.2 18.9x
January 2016 Abbott Alere Inc. $ 7.7 15.4x
September 2015 DENTSPLY Sirona Dental
International Systems Inc.
Inc. $ 5.2 16.1x
June 2015 Hill-Rom Welch Allyn,
Holdings, Inc. Inc. $ 2.1 14.6x
October 2014 Becton, CareFusion
Dickinson and Corporation
Company $ 12.2 14.1x
--------------------------------------------------------------------------------
Based on the results of the foregoing calculations and Goldman Sachs' analyses
of the selected transactions and its professional judgment, Goldman Sachs
applied a reference range of enterprise value to LTM Adjusted EBITDA multiples
of 14.1x to 21.2x to Hillrom's LTM Adjusted EBITDA as of June 30, 2021, as
provided by the management of Hillrom, to derive a range of implied enterprise
values for Hillrom. Goldman Sachs then subtracted the net debt of Hillrom of
approximately $1,860 million, as of June 30, 2021, pro forma for the acquisition
of BardyDx, and the present value of the contingent consideration payments and
the deferred FICA tax payments, as provided by the management of Hillrom, and
divided the result by the number a range of fully diluted outstanding shares of
Hillrom common stock of approximately 67.0 million to 67.3 million, as of August
26, 2021, as provided by the management of Hillrom and calculated using the
treasury stock method, to derive a reference range of implied values per share
of Hillrom common stock of $105 to $172, rounded to the nearest dollar.
The section of the Proxy Statement entitled "The Merger-Opinion of BofA
Securities, Inc." is hereby supplemented as follows:
The fourth full paragraph on page 41 through the first full paragraph on page 42
is amended and restated as follows:
BofA Securities reviewed publicly available financial and stock market
information of the following eight selected publicly traded companies in the
medical technology industry listed in the table below.
BofA Securities reviewed, among other things, the enterprise values for each of
the selected companies and for Hillrom, calculated by multiplying the closing
share price of each applicable company on August 30, 2021 (and with respect to
Hillrom, by multiplying each of (i) the per share merger consideration and (ii)
the closing share price of Hillrom on July 27, 2021 (the "Unaffected Price"),
the day before The Wall Street Journal reported that Hillrom and Baxter were
discussing an acquisition of Hillrom by Baxter) by the number of fully-diluted
shares outstanding of the applicable company (determined on a treasury stock
method basis), and adding to (or subtracting from, as applicable) the result the
amount of the applicable company's net debt (or net cash) (defined as debt,
preferred equity and non-controlling interest (as applicable) less cash, cash
equivalents and marketable securities (as applicable)), as a multiple of Wall
Street analyst consensus estimates of calendar year 2021 and 2022 earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the
applicable company (referred to in this section as "2021E EV / EBITDA" and
"2022E EV / EBITDA"). Financial data and equity information of the selected
companies were derived from their public filings and publicly available Wall
Street research analysts' estimates published by FactSet as of August 30, 2021.
Financial data of Hillrom were derived from Hillrom's public filings and
publicly available Wall Street research analysts' estimates published by FactSet
as of August 30, 2021 and equity information provided by the management of
Hillrom. The overall low to high 2021E EV / EBITDA multiples observed for the
selected companies were 9.8x to 26.3x (with a mean of 18.5x and median of
17.1x). The overall low to high 2022E EV / EBITDA multiples observed for the
selected companies were 13.3x to 22.3x (with a mean of 17.2x and median of
17.0x). BofA Securities noted that the 2021E EV / EBITDA multiple and the 2022E
EV / EBITDA multiple observed for Hillrom was 18.8x and 17.7x, respectively,
based on the per share merger consideration, and 15.4x and 14.5x, respectively,
based on the Unaffected Price.
--------------------------------------------------------------------------------
The results of this review were as follows:
Selected Publicly Traded Companies 2021E EV/EBITDA 2022E EV/EBITDA
STERIS plc
26.3x 22.3x
Hologic, Inc. 9.8x 16.8x
Teleflex Incorporated 24.3x 21.1x
DENTSPLY SIRONA Inc. 15.3x 13.8x
Integra Lifesciences Holdings Corporation 19.0x 17.2x
ICU Medical, Inc. 15.1x 13.7x
CONMED Corporation 23.2x 19.4x
NuVasive, Inc. 14.8x 13.3x
Mean 18.5x 17.2x
Median 17.1x 17.0x
Hill-Rom Holdings, Inc. (Offer Price) 18.8x 17.7x
Hill-Rom Holdings, Inc. (Unaffected Price) 15.4x 14.5x
The second full paragraph on page 42 is amended and restated as follows:
Based on BofA Securities' review of the enterprise values to EBITDA multiples
for the selected companies and Hillrom and on its professional judgment and
experience, BofA Securities applied a 2021E EV / EBITDA multiple reference range
of 14.5x to 18.5x to Hillrom management's estimates of calendar year 2021
Adjusted EBITDA, as reflected in the Hillrom Projections, and a 2022E EV /
EBITDA multiple reference range of 13.0x to 17.0x to Hillrom management's
estimates of calendar year 2022 Adjusted EBITDA as reflected in the Hillrom
Projections to calculate ranges of implied enterprise values for Hillrom. BofA
Securities then calculated implied equity value reference ranges per share of
Hillrom common stock (rounded to the nearest $0.25) for Hillrom by subtracting
from the resulting ranges of implied enterprise values it calculated the net
debt of Hillrom of $1,860 million as of June 30, 2021 (calculated as debt less
cash, and pro forma for Hillrom's acquisition of Bardy Diagnostics, Inc.), as
reflected in Hillrom's public filings, and dividing the result by
a approximately 67 million, the number of fully-diluted shares of Hillrom common
stock outstanding (calculated on a treasury stock method basis, based on
information provided by the management of Hillrom). This analysis indicated the
following approximate implied equity value reference ranges per share of Hillrom
common stock, as compared to the per share merger consideration:
The fourth full paragraph on page 42 through the first full paragraph on page 43
is amended and restated as follows:
BofA Securities reviewed, to the extent publicly available, financial
information relating to the following thirteen selected transactions listed in
the table below involving acquisitions of publicly traded medical technology
companies since 2014.
For each of these transactions, BofA Securities reviewed the enterprise values
implied for each target company based on the consideration payable in the
selected transaction, as multiples of estimates of the target company's last
twelve (12) months EBITDA, or "LTM EBITDA", and as multiples of estimates of the
target company's next twelve (12) months EBITDA, or "NTM EBITDA", in each case,
as of the announcement of the relevant transaction and based on publicly
available information at that time. The overall low to high enterprise value to
LTM EBITDA multiples of the target companies in the selected transactions were
13.7x to 28.7x (with a mean of 18.4x and median of 16.6x). The overall low to
high enterprise value to NTM EBITDA multiples of the target companies in the
selected transactions were 11.0x to 27.3x (with a mean of 17.1x and median of
16.3x).
--------------------------------------------------------------------------------
The results of this review were as follows:
Announcement EV/LTM EV/NTM
Date Target Acquiror EBITDA EBITDA
01/12/21 Cantel Medical Corp. STERIS plc 22.1x 17.4x
12/18/20 BioTelemetry, Inc. Koninklijke Philips 26.3x 20.0x
N.V.
05/02/19 Acelity L.P. Inc. 3M Co. 14.9x 11.0x
Johnson & Johnson
06/06/18 Advanced Sterilization Fortive Corporation 13.7x NA
Products
04/23/17 C. R. Bard, Inc. Becton, Dickinson and 21.2x 19.0x
Company
12/20/16 LifeCell Corporation Allergan plc NA NA
10/18/16 Abbott Vascular Access Terumo Corporation 14.0x NA
Business
02/16/16 Physio-Control, Inc. Stryker Corporation 17.1x NA
02/01/16 Sage Products LLC Stryker Corporation 17.6x 15.2x
09/15/15 Sirona Dental Systems Dentsply International 16.1x 14.5x
Inc. Inc.
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HILL-ROM HOLDINGS, INC. 
