Danaher (DHR) Remains on CreditWatch Negative at S&P Pending Completion of Pall Corp. Deal

Standard & Poor's Ratings Services announced today that its ratings on Danaher (NYSE: DHR) will remain on CreditWatch with negative implications. We placed the ratings on CreditWatch on May 13, 2015, following the company's announcement that it agreed to acquire Pall Corp. for $13.8 billion and its intention to separate into two independent, publicly traded companies by the end of 2016. We expect Danaher to finance the acquisition with commercial paper and unsecured notes (to be issued in 2015), as well as cash on hand.

"Upon completion of the Pall acquisition, which is subject to regulatory approval and expected to occur by the end of 2015, we plan to lower the corporate credit rating to 'A' and assign a stable outlook, said Standard & Poor's credit analyst Svetlana Olsha. "We also expect to affirm our 'A-1' short-term rating on Danaher," said Ms. Olsha.

The downgrade of the corporate credit rating on Danaher to 'A', if the Pall acquisition closes as expected, would primarily reflect the significant increase in debt. Pro forma for the Pall acquisition and the subsequent spin-off of certain industrial businesses, we would continue to assess the company's business risk profile as "strong," as defined in our criteria. Danaher should continue to benefit from a combination of broad end market diversity, global presence in both mature and higher-growth regions, and an increased proportion of recurring revenues from aftermarket, consumables, and services (which we expect will grow from 40% in 2014 to over 60% upon separation). The spin-off of some of the company's industrial businesses should result in lower cyclicality and even more consistent free cash flow generation. Although the company has a successful track record of strategic and operation execution, we believe some operational risk relating to the integration and subsequent separation of its businesses would persist over the next two years.

If the Pall acquisition is completed as proposed, we would revise Danaher's financial risk profile to "intermediate" from "minimal," as defined in our criteria. We believe the company will be able to generate strong and consistent free cash flow and believe management is committed to using a substantial portion of cash flow to reduce debt in the next 12 to 24 months. We would therefore expect to revise our financial policy modifier to "neutral" from "negative," as defined in our criteria. Although we anticipate the company could resume its very active acquisition strategy by the end of 2017,
we believe that, by then, it will have restored its capacity for additional growth, sufficiently enough to support the 'A' rating.

We expect to affirm our 'A-1' short-term rating on Danaher and revise our assessment of Danaher's liquidity to "adequate" from "strong," largely stemming from the substantial amount of commercial paper the company will use to fund the Pall acquisition.

If the company completes the transaction as proposed, we would lower the corporate credit rating and affirm our short-term debt rating upon closing of the transaction.

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