Terence Paré:
Danaher (DHR, Financial) is in a lot of different businesses. It started out as an industrial company making things like hand tools and engine retarders. It used to make Craftsman mechanics tools. But the company right now is basically — and in fact has reclassified its documentation with the SEC — to that for industrial instruments. Danaher makes things like oscilloscopes, mass spectrometers. It has a very significant dental business. But it still sells Matco hand tools, which are sold in vans that drive around to garages, industrial printers, medical gear, water treatment equipment, and more.
The business right now is in the headlines a lot because management recently announced that it is going to break Danaher into three pieces and it is going to acquire Pall, which is an industrial filter company. One piece will be Pall and Danaher’s instruments piece, and another will be the industrial businesses. On top of that, Danaher has a communications business. This is part of an earlier acquisition and was originally called Tektronix Communications. Without getting too far under the hood, Tektronix Communications makes gear and software that keep track of the way that the IT infrastructure works in enterprises. For example, it will track if there is some weird glitch going on somewhere in your enterprise system.
Danaher has decided to combine that piece of its business with a company called NetScout, which further complicates things because shareholders are going to be offered the opportunity to swap their Danaher shares for NetScout shares. These are very different businesses from the rest of the company. When the communications piece was in Danaher, it was fun to talk about, but it was relatively small. When it is combined with NetScout, we are going to have to make a decision about how we want to go about dealing with our Danaher stock. I am still working on this. Most of the big news about Danaher has only occurred in the past week or so. So we are still noodling over it. But like Mohawk, Danaher is one of our oldest positions. I think only Berkshire has been in the portfolio longer. Danaher has been a very good investment for us. Where we go from here right now is hard to say because we can elect to own one, two, or three pieces.
One thing I would say, and this speaks to a principle that Bob has pointed to before, and that is that there is significant insider ownership of Danaher by the Rales brothers. They will continue to serve on the boards of both companies after they split it apart. And Jim Lico, a Danaher executive vice president, will serve on NetScout’s board. What is not clear to me is whether or in which entity or entities the Rales brothers are going to elect to receive a percentage of shares disproportionately higher or lower than their current ownership of Danaher. The Rales have made an awful lot of money for themselves — and they have made, relatively speaking on a percentage basis, a lot of money for us. They are not going to do anything ill-advised.
From Ruane, Cunniff & Goldfarb Investor Day 2015 Transcript Part II - Sequoia Fund.
