In mid-July, it was announced that Waters would expand its clinical footprint via a $17.5B acquisition of Becton Dickinson’s diagnostics business.
Six weeks later, there's a relevant headline in today's WSJ: "The Year's Buzziest Deals are Corporate Breakups. Companies are splitting themselves up to appease frustrated investors. Thomas & Glickman, 9/4/2025."
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Here are some sources:
WSJ - review of break-ups and spin-offs. Here.
The Waters-BD deal. In WSJ July 14 here. In Reuters here. In 360Dx on August 28 here (Waters CEO).
I understand it's likely a "Reverse Morris" deal - Chat GPT explains here.
Chat GPT 5 quick take on BD-Waters. Here. "BD concentrates on medical devices..." here.
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AI CORNER
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Chat GPT 5 provides a guided summary (prompt at bottom).
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Here’s a composite article that weaves together the BD–Waters deal, the broader boom in corporate breakups, and the mechanics of a Reverse Morris Trust, written at a WSJ/FT level.
Waters’ $17.5 Billion Bet on BD’s Labs: A Deal Born of Breakups
Becton Dickinson’s decision to shed its biosciences and diagnostics division in a $17.5 billion combination with Waters Corp. captures two converging trends: the remaking of U.S. healthcare conglomerates and the resurgence of corporate breakups as Wall Street’s deal du jour.
The Transaction
Announced in July, the transaction will spin out BD’s Biosciences & Diagnostics Solutions business and merge it with Waters, the Massachusetts-based maker of analytical instruments. Structured as a Reverse Morris Trust, the deal allows BD to divest tax-free while handing its shareholders a 39% stake in the enlarged Waters. BD will also pocket $4 billion in cash, while Waters assumes $4 billion of new debt.
For BD, the deal represents a strategic narrowing. Chief Executive Tom Polen has signaled a sharper focus on core medical technologies, from pre-filled syringes to vascular devices, while moving away from the volatile world of molecular diagnostics. BD is simultaneously investing in initiatives like community screening for peripheral artery disease, underscoring its pivot toward patient-facing medtech.
For Waters, under CEO Udit Batra, the deal is transformative. It doubles the company’s addressable market to roughly $40 billion, enhances its presence in clinical diagnostics, and brings access to BD’s deep installed base of molecular and microbiology systems. Waters expects cost savings of $200 million within three years and sees longer-term upside from marrying its mass spectrometry know-how with BD’s platforms.
A Reverse Morris Trust Explained
The Reverse Morris Trust is a favored Wall Street tool for these situations. The mechanics are deceptively simple: BD spins off its diagnostics arm into a standalone entity, which then merges with Waters. To qualify for tax-free treatment, BD shareholders must own more than 50% of the combined company at the moment of closing. Once the ink is dry, those shareholders can sell immediately—the IRS cares only about ownership at closing, not after.
The attraction is clear. BD avoids a hefty capital gains bill, shareholders retain upside through stock in both companies, and Waters acquires a business at an effective discount. Indeed, the unit is being valued at about five times projected 2025 revenue—20% below the multiple fetched by peer Danaher.
Risks and Rewards
The deal is not without hazards. Waters, valued at about $21 billion before the announcement, is taking on substantial debt and complexity, more than doubling its revenue base. Nearly half of BD’s divested unit’s sales come from biosciences, a segment exposed to U.S. government cuts in research funding. Investors reacted warily: Waters shares fell by double digits on the news, reflecting fears the company may have bitten off more than it can chew.
Yet analysts note that BD’s diagnostics assets provide a counterweight: recurring revenue from clinical platforms like BD MAX and BD COR, as well as dense customer relationships across specialty and hospital labs. Waters is betting that these distribution channels can accelerate the adoption of mass spectrometry in clinical practice, a field where rivals from Thermo Fisher to Roche have struggled to crack the automation puzzle.
Part of a Bigger Story
The Waters–BD tie-up fits squarely within a broader boom in divestitures and spin-offs. As the Wall Street Journal noted this month, corporate breakups have become some of the year’s buzziest deals—from Warner Bros. Discovery’s decision to unwind its $43 billion megamerger to Kraft Heinz’s plan to split a decade after Warren Buffett orchestrated its union. The rationale is consistent: investors have grown weary of conglomerates trading at discounts, and activist shareholders are pushing management teams to simplify portfolios.
In BD’s case, activist fund Starboard Value pressed for the separation earlier this year, valuing the diagnostics unit at $33–35 billion. While the final transaction came in lower, BD achieved its goal: a cleaner profile, immediate cash for buybacks and debt reduction, and the ability to tell investors a more focused growth story.
The Outlook
If the transaction clears regulators, closing is expected by the end of Q1 2026. Waters will emerge as a markedly larger and riskier player—one with twice the scale, greater exposure to recurring diagnostic revenues, and a hefty debt load. For BD, the divestiture sharpens its medtech identity and aligns with a wider investor-driven trend: simplifying sprawling empires into leaner, more transparent businesses.
In that sense, the deal is not just about two companies. It is a case study in how Wall Street’s current enthusiasm for corporate breakups is reshaping the healthcare landscape—one Reverse Morris Trust at a time.
Prompt.
[For article above] Write a composite article about the Becton Dickinson spinoff to Waters. Include a special focus on the WSJ article on why there's a boom in spinoffs and divestures, and the other articles fit in that frame. inform readers what a reverse morris trust is. You're writing at the WSJ or Financial Times level.
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[For clipping below.] I don't quite get a key point, from WSJ, why do these spinouts raise shareholder value? 1 + 1 = 3? or 2-1 = something bigger than "1"? Does the stock market have to be irrational for the spinouts to be worth more than the original sum?
Great question — and it goes to the heart of why investors (and activists) push for breakups. The WSJ (“The Year’s Buzziest Deals Are Corporate Breakups”) makes the case that the stock market isn’t being “irrational” so much as re-rating the pieces once they’re no longer trapped inside a conglomerate.
Here’s the logic, in WSJ/FT terms:
The “Conglomerate Discount”
Large diversified companies often trade at a discount to the sum of their parts. Investors don’t always give full credit to a high-growth or high-margin division if it is bundled inside a slower, more cyclical group. Think of BD: its diagnostics business was growing high-single digits, but the market valued all of BD more like a mature medtech player with recalls and pricing headwinds.
So the spin is like 2 – 1 = more than 1. You remove the drag, and the remaining company re-rates higher. Meanwhile, the spun-out or merged unit can get valued in line with its faster-growing peers.
Sharper Narratives for Investors
Post-split, each company can tell a clearer story. Investors want to “put their money into something where they’re clear what it does,” as one M&A lawyer told the WSJ.
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BD becomes a pure-play medical technology company, easier to compare with peers like Medtronic or Edwards.
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Waters, meanwhile, doubles its market and gains a recurring diagnostics revenue stream. Investors who want the diagnostics growth story can now buy Waters directly.
Clarity matters in markets. A “simpler” stock can attract a broader base of investors, especially growth or income funds that screen out conglomerates.
Incentives and Focus
Breakups can also improve operating performance. Management teams no longer fight for capital across unrelated units; incentives align more closely with each business’s strategy. That can unlock productivity or M&A optionality that was stifled before.
Does 1 + 1 = 3?
It’s not that value is magically created. Instead:
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1 (BD as a whole) traded below its potential.
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Split into 2, and each is valued on more favorable peer multiples.
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The “extra” comes from removing the conglomerate discount and from investors pricing the pieces more optimistically once they stand alone.
The stock market doesn’t have to be irrational. It just needs to believe that separate companies are easier to understand, benchmark, and invest in than a sprawling, mixed-growth conglomerate.
📊 Think of it less as “1 + 1 = 3,” and more as “2 – 1 = worth more than 1,” because the leftover pieces are finally valued on their own merits.
Would you like me to build a numerical worked example (e.g. applying different EBITDA multiples to BD’s diagnostics vs. medtech units, showing how the sum of parts > consolidated valuation) to make this concrete?
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See the same sources collated by Google Notebook LM here.
