NOTE B – ACQUISITIONS AND STRATEGIC INVESTMENTS

Our consolidated financial statements include the operating results for each acquired entity from its respective date of acquisition. We do not present pro forma financial information for these acquisitions given their results are not material to our consolidated financial statements. Transaction costs associated with these acquisitions were expensed as incurred and are not material for 2018, 2017 and 2016.

Proposed BTG Acquisition

On November 20, 2018, our board of directors and the board of directors of our wholly owned indirect subsidiary, Bravo Bidco Limited (Bidco), and BTG plc (BTG), a public company organized under the laws of England and Wales, issued an announcement (the Rule 2.7 Announcement) under Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers, disclosing the terms of a recommended cash offer to be made by Bidco for the entire issued and to be issued ordinary share capital of BTG (the proposed BTG Acquisition). On January 24, 2019, Bidco made such offer on the terms and subject to the conditions of the scheme document published on the same date. In connection with the proposed BTG Acquisition, (i) we entered into a co-operation agreement with Bidco and BTG (the Co-operation Agreement), (ii) certain shareholders and each BTG director owning shares of BTG delivered deeds of irrevocable undertakings to Bidco and (iii) we entered into a bridge credit agreement (the Bridge Facility). Refer to Note E – Borrowings and Credit Arrangements for further details of the Bridge Facility. On February 14, 2019, each of the Company and BTG received a request for additional information and documentary material from the United States Federal Trade Commission in connection with the proposed BTG Acquisition.

Under the terms of the proposed BTG Acquisition, BTG shareholders will receive 840 pence in cash for each BTG share, which values BTG’s existing issued and to be issued ordinary share capital at approximately £3.311 billion (or approximately $4.225 billion based on the exchange rate of U.S. $1.28: £1.00 on December 31, 2018). We intend to implement the proposed BTG Acquisition by way of a court-sanctioned scheme of arrangement (Scheme) under Part 26 of the United Kingdom Companies Act 2006, as amended (the Companies Act).

The proposed BTG Acquisition will be subject to conditions and certain further terms, including (i) the approval of the Scheme by a majority in number of BTG shareholders also representing not less than 75 percent in value of the BTG shares, in each case, present, entitled to vote and voting, (ii) the sanction of the Scheme by the High Court of Justice in England and Wales, (iii) the Scheme becoming effective no later than August 20, 2019 and (iv) the receipt of regulatory approvals. The conditions to the proposed BTG Acquisition are set out in full in the Rule 2.7 Announcement. Subject to the satisfaction or waiver of all relevant conditions, we expect the proposed BTG Acquisition to be effective in the first half of 2019.

We are entitled to implement the proposed BTG Acquisition by way of a takeover offer (as defined in Part 28 of the Companies Act) in certain circumstances, subject to the terms of the Co-operation Agreement and the consent of the Panel on Takeovers and Mergers in the United Kingdom.

Pursuant to the Co-operation Agreement, the Company and Bidco have undertaken to use commercially reasonable efforts to secure the required regulatory clearances in respect of the proposed BTG Acquisition as soon as reasonably practicable, to provide each other with such information and assistance as may reasonably be required for the purpose of making any filing, notification or submission to relevant antitrust and regulatory authorities, and Bidco has agreed to provide BTG with information required for the preparation of Scheme documentation. The Co-operation Agreement addresses certain other matters, as set forth therein.

Invesco Asset Management Limited subsequently sold certain BTG shares, subject to its irrevocable undertaking, to certain funds managed by Pentwater Capital Management Europe LLP (together, the Pentwater Funds) and Woodford Investment Management Limited sold all of the BTG shares subject to its irrevocable undertaking to Arrowgrass Master Fund Limited and Anavio Capital Master Fund Limited and funds managed, variously, by Anavio Capital Partners LLP, Sand Grove Capital Management LLP, Tavira Securities and Melquart Asset Management (UK) Ltd. (all together with the Pentwater Funds, the New Shareholders). These BTG shares remain subject to deeds of irrevocable undertakings under which each New Shareholder is committed, among other things, to vote its BTG shares in favor of the Scheme and against any proposal that would impede or frustrate the completion of the proposed BTG Acquisition.

The Shareholder Undertakings and the Director Undertakings will remain in effect if the Company and Bidco elect to effect the proposed BTG Acquisition by way of a takeover offer and will cease to be binding in certain circumstances.

BTG develops and commercializes products used in minimally-invasive procedures targeting cancer and vascular diseases, as well as acute care pharmaceuticals.

2019 Acquisitions

Millipede, Inc.

On January 29, 2019, we announced the closing of our acquisition of Millipede, Inc. (Millipede), a privately-held company that has developed the IRIS Transcatheter Annuloplasty Ring System for the treatment of severe mitral regurgitation. We have been an investor in Millipede since the first quarter of 2018 as part of an investment and acquisition option agreement, whereby we purchased a portion of the outstanding shares of Millipede along with newly issued shares of the company for an upfront cash payment of $90 million. In the fourth quarter of 2018, upon the recent successful completion of a first-in-human clinical study, we exercised our option to acquire the remaining shares of Millipede. We held an interest of approximately 20 percent immediately prior to the acquisition date. The transaction price for the remaining stake consists of an upfront cash payment of $325 million and up to an additional $125 million payment upon achievement of a commercial milestone. Millipede will be part of our Interventional Cardiology business. Our initial accounting for Millipede will be completed in the first quarter of 2019, and as such, the purchase price allocation in the aggregated disclosures below excludes Millipede.

2018 Acquisitions

Augmenix, Inc.

On October 16, 2018, we announced the closing of our acquisition of Augmenix, Inc. (Augmenix), a privately-held company that developed and commercialized the SpaceOAR™ Hydrogel System to help reduce common and debilitating side effects that men may experience after receiving radiotherapy to treat prostate cancer. The transaction price consists of an upfront cash payment of $500 million and up to $100 million in payments contingent upon revenue-based milestones. Augmenix is part of our Urology and Pelvic Health business.

Claret Medical, Inc.

On August 2, 2018, we announced the closing of our acquisition of Claret Medical, Inc. (Claret), a privately-held company that has developed and commercialized the Sentinel™ Cerebral Embolic Protection System. The device is used to protect the brain during certain interventional procedures, predominately in patients undergoing transcatheter aortic valve replacement (TAVR). The transaction price consists of an upfront cash payment of $220 million and an additional $50 million payment for reaching a reimbursement-based milestone that was achieved in the third quarter. Claret is part of our Interventional Cardiology business.

Cryterion Medical, Inc.

On July 5, 2018, we announced the closing of our acquisition of Cryterion Medical, Inc. (Cryterion), a privately-held company developing a single-shot cryoablation platform for the treatment of atrial fibrillation. We have been an investor in Cryterion since 2016 and held an interest of approximately 35 percent immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of $202 million. Cryterion is part of our Electrophysiology business.

NxThera, Inc.

On April 30, 2018, we announced the closing of our acquisition of NxThera, Inc. (NxThera), a privately-held company that developed the Rezūm™ System, a minimally invasive therapy in a growing category of treatment options for patients with benign prostatic hyperplasia (BPH). We held a minority interest immediately prior to the acquisition date. The transaction price to acquire the remaining stake consists of an upfront cash payment of approximately $240 million and up to approximately $85 million in commercial-based milestones. NxThera is part of our Urology and Pelvic Health business.

nVision Medical Corporation

On April 16, 2018, we announced the closing of our acquisition of nVision Medical Corporation (nVision), a privately-held company focused on women’s health. nVision developed the first and only device cleared by the U.S. Food and Drug Administration (FDA) to collect cells from the fallopian tubes, offering a potential platform for earlier diagnosis of ovarian cancer. The transaction price consists of an upfront cash payment of $150 million and up to approximately $125 million in payments contingent upon clinical and commercial-based milestones. nVision is part of our Urology and Pelvic Health business.

In addition, we completed other individually immaterial acquisitions in 2018 for total consideration of $158 million in cash at closing plus aggregate contingent consideration of up to $62 million.

We recorded gains of $184 million in 2018 within Other, net on our consolidated statements of operations based on the difference between the book values and the fair values of our previously-held investments immediately prior to the acquisition dates, which aggregate to $251 million. We re-measured the fair value of each previously-held investment based on the implied enterprise value and allocation of purchase price consideration according to priority of equity interests.

Purchase Price Allocation

We accounted for these acquisitions as business combinations, and in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate preliminary purchase prices are as follows for our 2018 acquisitions as of December 31, 2018:



(in millions)
Payments for acquisitions, net of cash acquired	$	1,449
Fair value of contingent consideration	248
Fair value of prior interests	251
	$	1,948

The following summarizes the preliminary purchase price allocations for our 2018 acquisitions as of December 31, 2018:



(in millions)
Goodwill	$	942
Amortizable intangible assets	938
IPR&D	213
Other assets acquired	38
Liabilities assumed	(19		)
Net deferred tax liabilities	(164		)
	$	1,948

We allocated a portion of the preliminary purchase prices to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets
Technology-related	$	907	6 - 14	14% - 23%
Other intangible assets	31		6 - 13	13% - 15%
Indefinite-lived intangible assets
IPR&D	213		N/A	15%
	$	1,152

2017 Acquisitions

Apama Medical Inc.

On October 11, 2017, we announced the closing of our acquisition of Apama Medical Inc. (Apama), a privately-held company developing the Apama™ Radiofrequency single-shot Balloon Catheter System for the treatment of atrial fibrillation. The transaction price consisted of an upfront cash payment of approximately $175 million and up to approximately $125 million in payments contingent upon clinical and regulatory milestones. Apama is part of our Electrophysiology business.

Symetis SA

On May 16, 2017, we announced the closing of our acquisition of Symetis SA (Symetis), a privately-held Swiss structural heart company focused on minimally-invasive TAVR devices. The transaction price consisted of an upfront cash payment of approximately $430 million. Symetis is part of our Interventional Cardiology business.

Purchase Price Allocation

We accounted for these acquisitions as a business combination and, in accordance with FASB ASC Topic 805, Business Combinations, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The components of the aggregated purchase prices are as follows for our 2017 acquisitions as of December 31, 2018:



(in millions)
Payment for acquisitions, net of cash acquired	$	560
Fair value of contingent consideration	72
	$	632

The following summarizes the aggregated purchase price allocations for our 2017 acquisitions as of December 31, 2018:



(in millions)
Goodwill	$	287
Amortizable intangible assets	278
Indefinite-lived intangible assets	186
Other assets acquired	44
Liabilities assumed	(61		)
Deferred tax liabilities	(102		)
	$	632

We allocated a portion of the purchase prices to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets
Technology-related	$	268	13	24%
Other intangible assets	10		2 - 13	24%
Indefinite-lived intangible assets
IPR&D	$	186	N/A	15%
	$	464

2016 Acquisitions

EndoChoice Holdings, Inc.

On November 22, 2016, we announced the closing of our acquisition of EndoChoice Holdings, Inc. (EndoChoice), an Alpharetta, Georgia based company focused on the development and commercialization of infection control products, pathology services and single-use devices for specialists treating a wide range of gastrointestinal (GI) conditions. The transaction price consisted of an upfront cash payment of approximately $213 million, or $8.00 per share, and repayment of EndoChoice's existing senior term loan facility totaling $43 million and related acquisition fees and expenses. EndoChoice is part of our Endoscopy business.

In addition, we completed other individually immaterial acquisitions during 2016 for total consideration of $189 million in cash at closing plus aggregate contingent consideration of up to $125 million.

Purchase Price Allocation

We accounted for these acquisitions as a business combination and, in accordance with FASB ASC Topic 805, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The components of the aggregated purchase prices are as follows:



(in millions)
Payment for acquisitions, net of cash acquired	$	365
Fair value of contingent consideration	50
Fair value of debt repaid	43
	$	458

The following summarizes the aggregated purchase price allocations for our 2016 acquisitions:



(in millions)
Goodwill	$	204
Amortizable intangible assets	228
Other assets acquired	83
Liabilities assumed	(57		)
	$	458

We allocated a portion of the purchase prices to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Risk-Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets
Technology-related	$	176	9 - 13	11% - 20%
Customer relationships	51		9 - 13	11% - 12%
Other intangible assets	1		4	11%
	$	228

For our 2018, 2017 and 2016 acquisitions, our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we will leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a variation of the income approach and relief from royalty approach to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives.

Other intangible assets primarily include acquired customer relationships and tradenames. Customer relationships represent the estimated fair value of non-contractual customer, payor and distributor relationships. Customer relationships are direct relationships with physicians and hospitals performing procedures with the acquired products, payor relationships are contracts and relationships with healthcare payors relating to reimbursement of services and distributor relationships are relationships with third parties used to sell the acquired products, all as of the acquisition date. These relationships were valued separately from goodwill because there is a history and pattern of conducting business with customers and distributors. We used the income approach or the replacement cost and lost profits methodology to derive the fair value of the customer relationships. The customer relationships intangible assets are amortized on a straight-line basis over their assigned estimated useful lives. Tradenames include brand names that we expect to continue using in our product portfolio and related marketing materials. The tradenames are valued using a relief from royalty methodology and are amortized on a straight-line basis over their assigned estimated useful lives.

We believe that the estimated intangible asset values represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets. These fair value measurements are based on significant unobservable inputs, including management estimates and assumptions and, accordingly, are classified as Level 3 within the fair value hierarchy prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures.

Goodwill was established due primarily to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies and has been allocated to our reportable segments based on the relative expected benefit. Based on preliminary estimates, the goodwill recorded related to our 2018 acquisitions is not deductible for tax purposes. The goodwill recorded related to our 2017 acquisitions is not deductible for tax purposes. Of the goodwill recorded related to our 2016 acquisitions, $116 million is deductible for tax purposes. Refer to Note C - Goodwill and Other Intangible Assets for more information related to goodwill allocated to our reportable segments.

Contingent Consideration

Changes in the fair value of our contingent consideration liability were as follows:



(in millions)
Balance as of December 31, 2016	$	204
Amounts recorded related to current year acquisitions	94
Contingent consideration expense (benefit)	(80		)
Contingent consideration payments	(48		)
Balance as of December 31, 2017	$	169
Amounts recorded related to current year acquisitions	248
Purchase price adjustments related to prior year acquisitions	(22		)
Contingent consideration expense (benefit)	(21		)
Contingent consideration payments	(28		)
Balance as of December 31, 2018	$	347

As of December 31, 2018, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $873 million. The maximum amount of future contingent consideration (undiscounted) decreased approximately $447 million compared to the amount as of December 31, 2017 due primarily to the expiration of certain contingent consideration arrangements in 2018.

The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs:



Contingent Consideration Liabilities	Fair Value as of December 31, 2018	Valuation Technique	Unobservable Input	Range
R&D, Regulatory and Commercialization-based Milestones	$189 million	Discounted Cash Flow	Discount Rate	3% - 4%
			Probability of Payment	17% - 100%
			Projected Year of Payment	2019 - 2022
Revenue-based Payments	$158 million	Discounted Cash Flow	Discount Rate	11% - 15%
			Probability of Payment	60% - 100%
			Projected Year of Payment	2019 - 2026

Projected contingent payment amounts related to some of our R&D, commercialization-based and revenue-based milestones are discounted back to the current period using a Discounted Cash Flow model. Projected revenues are based on our most recent internal operational budgets and strategic plans. Increases or decreases in projected revenues, probabilities of payment, discount rates or the time until payment may result in materially different fair value measurements.

Strategic Investments

The aggregate carrying amounts of our strategic investments were comprised of the following categories:



	As of
(in millions)	December 31, 2018		December 31, 2017
Equity method investments	$	303	$	209
Measurement alternative investments	94		81
Publicly-held securities	—		15
Notes receivable	26		47
	$	424	$	353

These investments are classified as Other long-term assets within our accompanying consolidated balance sheets, in accordance with U.S. GAAP and our accounting policies.

As of December 31, 2018, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by approximately $334 million, which represents amortizable intangible assets, IPR&D, deferred tax liabilities and goodwill.

As of December 31, 2017, the cost of our aggregated equity method investments exceeded our share of the underlying equity in net assets by approximately $212 million, which represents amortizable intangible assets, IPR&D, deferred tax liabilities and goodwill.