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Life for Thermo
May 2013
by Lloyd Dunlap  |  Email the author
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WALTHAM, Mass.—Thermo Fisher Scientific Inc. and Life Technologies Corp. have signed a definitive agreement under which Thermo Fisher Scientific will acquire Life Technologies for $76 in cash per fully diluted common share, or approximately $13.6 billion, plus the assumption of net debt at close ($2.2 billion as of the end of 2012). The transaction has been approved by both companies' boards of directors.  
 
"We are extremely excited about this transaction because it creates the ultimate partner for our customers and significant value for our shareholders," says Marc N. Casper, president and CEO of Thermo Fisher Scientific. "The acquisition of Life Technologies enhances all three elements of our growth strategy: technological innovation, a unique customer value proposition and expansion in emerging markets. Our customers in research and applied markets will now be able to achieve even higher levels of innovation and productivity by working with the combined company. For our shareholders, we expect the transaction to generate attractive financial returns, as well as significant and immediate accretion to our adjusted EPS."  
 
Gregory T. Lucier, chairman and CEO of Life Technologies, says, "this transaction brings together two companies intent on accelerating innovation for our customers and achieving greater success in a highly competitive global industry. Further, this combination delivers immediate and significant cash value to our stockholders and represents a successful conclusion to the board's strategic review to enhance stockholder value and develop an even stronger future for Life Technologies."  
 
With 2012 revenues of $3.8 billion, Life Technologies' product offering includes a broad range of reagents, consumables, instruments and systems. Life Technologies' leading technologies are protected by approximately 5,000 patents and licenses. The company has an expansive commercial presence and global footprint as well, with more than 10,000 employees serving its customers around the world.
 
Thermo Fisher Scientific's press release states that Life Technologies' president and chief operating officer, Mark P. Stevenson, will have a significant leadership role in the combined company. In addition, Thermo Fisher Scientific intends to elect to its board of directors a member of Life Technologies' board of directors.
 
There is seldom a deal—particularly one of this magnitude—that makes everyone happy. Ratings and research firms were quick to weigh in with their opinions. Leerink Swann Research issued its "Bottom Line, " which stated, "We are increasing our valuation for TMO to a range of $92 to $94 (from $79 to $81) following the announcement that it is acquiring Life. We continue to rate TMO Outperform while we rate Life Market Perform, with a view that further upside to the $76 offer price is unlikely following a lengthy strategic review process." The research firm concluded that "the Life transaction could be >$1.15 accretive on an annualized basis to adjusted EPS. With $275 million in EBIT synergies (probably conservative) and an equity component no greater than $4 billion, we believe the acquisition should be >$1.15 accretive to adjusted earnings per share (EPS) on an annualized basis, once all synergies are captured (year 3). TMO communicated an expectation that the deal should be 90 cents to $1 accretive in the first year, with only tax synergies and ~30 percent of the planned operating synergies (mostly removal of $75 million in redundant public company costs)."  
 
Fitch Ratings was not as kind, placing the ratings of the two companies on Rating Watch Negative following the announcement. Fitch said the funding of Thermo Fisher Scientific's acquisition of Life Technologies is "expected to pressure the Waltham, Mass.-based company's credit profile, leading to a downgrade of its ratings," and cited the amount of debt Thermo Fisher Scientific winds up using as one factor that will affect the company's credit profile.  
 
On the upside, Thermo Fisher Scientific points out that the acquisition provides the opportunity for $275 million of adjusted operating income synergies in year three following the close, consisting of $250 million of cost synergies and $25 million of revenue synergies. In addition, Thermo Fisher Scientific expects the transaction to be significantly and immediately accretive to adjusted EPS. But in one of those good news/bad news situations, a survey across 2,172 researchers conducted by Percepta Associates less than 24 hours after the announcement found that 49 percent were aware of the news, and of those, 795 respondents viewed the results as likely to be essentially neutral, 911 expressed disapproval and 411 approved. Respondents were most positive about logistical attributes—with product selection (including online), ease of ordering and shipping costs are expected to improve. Pricing, innovation, sales and technical support and overall ease of doing business were all given predominantly neutral to negative ratings.
 
Life Technologies "is well-known for its next-generation sequencing capability," the Thermo Fisher Scientific press release points out, and indeed, Life Technologies' Ion Torrent NGS technology was on the minds of virtually everyone who attended the companies' webcast. The technology results in a sequencing system that is said to be simpler, faster, less expensive and more scalable than any other technology available.  
 
Life Technologies bought Ion Torrent for $375 million in cash and stock in late 2010 with Ion Torrent also entitled to an additional consideration of $350 million in cash and stock upon the achievement of certain technical and time-based milestones through 2012. Ion Torrent's sequencing technology requires no proprietary chemistries or optics because it is based on a biochemical process. Dr. Jonathan Rothberg, the company's CEO, was labeled "key to this acquisition," by Stevenson.  
 


Terms and conditions 

Thermo Fisher Scientific will acquire Life Technologies for $76 in cash per fully diluted common share. The transaction, which is expected to close early in 2014, is subject to a Life Technologies shareholder vote and satisfying customary closing conditions, including regulatory approvals. Thermo Fisher Scientific has obtained committed bridge financing from JP Morgan and Barclays. Of the $13.6 billion of total cash consideration, the company expects the split to be cash and debt of $9.5 to $10 billion and equity of up to $4 billion. Thermo Fisher Scientific expects to maintain an investment-grade rating after the transaction has closed.

 
Code: E051301

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