Grace Rebuffs Baxter Bid for Kidney Unit

W.R. Grace & Co. on Friday rebuffed Baxter International’s $3.8-billion bid for its kidney dialysis subsidiary, saying Baxter had failed to participate “in an orderly sale process.�

Grace said it will announce plans Monday for its National Medical Care unit, the nation’s largest kidney dialysis provider, with $1.9 billion in 1994 sales. Other bidders for the unit were expected to emerge, including Fresenius, a German maker of medical products. Fresenius had been discussing a transaction with Grace executives in which National Medical would be spun off and merged with a Fresenius unit, Grace’s institutional shareholders said.

However, several analysts said Fresenius is unlikely to top Baxter’s offer because the German company is interested in only part of National Medical.

Asked about such an offer, Grace spokesman Chuck Suits said, “I have no comment about Fresenius today.�

Baxter said it went public with its offer Friday to force Grace to the negotiating table. The company said that although it has had discussions with Grace about various strategic alliances, Grace had not responded to the proposal, which Baxter made Wednesday.

“We feel like we put a proposal on the table and we want to negotiate,� said Jill Carter, a Baxter vice president. “While they say whatever it is they say, we haven’t been asked to participate.�

Following news of the Baxter bid, Grace shares soared $7.375 to $69.25 on the New York Stock Exchange. Baxter shares fell $2.50 to $42.50. Citing the size of Baxter’s offer, Moody’s Investors Service on Friday continued its review of the long-term debt and commercial paper ratings of Baxter for possible downgrade.

“In an acquisition of this size, that is not an uncommon reaction,� Carter said. She said the company had the ability to complete the offer.

Grace had planned to spin off its National Medical Care business to shareholders last fall, after rejecting a $3.5-billion bid from the unit’s chairman. But the spinoff plans have been hampered by a Health and Human Services Department probe over federal Medicare payments received for treatment of older patients. A federal grand jury in New Jersey has been investigating whether National Medical sold defective products and properly handled customer complaints. A federal grand jury in Virginia has been looking into contracts for dialysis service.

As part of its bid, Baxter said it would accept up to $100 million in any legal or financial liabilities stemming from the investigations. Baxter offered to pay Grace $2 billion in cash, notes and assumed debt plus $1.8 billion in Baxter common stock. The buyout would take place after Grace completed the spinoff of National Medical.

One of Baxter’s major product lines is kidney dialysis equipment, although it does not operate dialysis centers. It said its kidney-related businesses accounted for about $1.3 billion of its $10 billion in 1995 sales.

“This transaction is a compelling proposal for shareholders, patients, customers and employees around the world,� Vernon R. Loucks Jr., chairman and chief executive of Baxter, said in a statement. “Without question, Baxter is the most logical acquirer of NMC.�