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$400M Proceeds from Divestitures to Fund PerkinElmer s Health Sciences Expansion

PerkinElmer plans to use its roughly $400 million in proceeds from the sale of two businesses to focus its efforts going forward primarily on the health sciences market.

The divestitures of its aerospace business and semiconductor and fluid-testing businesses also will enable the company to repay its debt, which currently stands at $270 million and has been the primary reason PerkinElmer has been relatively quiet on the acquisition front for the past few years.

The decision to sell off a major portion of its business also comes three months after the firm laid off an undisclosed number of employees amid plans to shift its sales focus from Europe to the Asian market, particularly China and India (see BioCommerce Week 7/14/2005).

"Since 1998, we have been on a journey to shift our business portfolio into higher growth markets with a strategic focus on health sciences," said Greg Summe, chairman and CEO of PerkinElmer, during a conference call. "At the beginning of 1998, health sciences was less than 10 percent of our revenue, and after this transaction it will be over 80 percent of a larger revenue base."

"Since 1998, we have been on a journey to shift our business portfolio into higher growth markets with a strategic focus on health sciences. At the beginning of 1998, health sciences was less than 10 percent of our revenue, and after this transaction it will be over 80 percent of a larger revenue base."

While repaying the debt is the firm's priority, company executives said during the call that the funds would enable PerkinElmer to pursue licensing deals and acquisitions that would expand its offerings in the health sciences field.

"Clearly, this gives us a very strong balance sheet to continue building our growth platforms, particularly in genetic screening, molecular medicine, medical imaging and service," said Summe, whose company had $158.7 million in cash and cash equivalents as of July 3. "We intend to be a major contributor to the predictive diagnostics and personalized medicine markets."

While the impending divestitures may have come as a surprise to some, PerkinElmer's plans to expand its Life and Analytical Sciences division and its medical imaging business are not. Following the launch of its LumiLux ion-channel screening instrument and partnership with Invitrogen, PerkinElmer officials said they were "highly interested" in investing in the firm's cell-based assay and reagent businesses (see BioCommerce Week 9/22/2005).

In addition, Summe said earlier this year that the company was shifting its focus to higher-growth applications and would pursue selective technology acquisitions and partnerships (see BioCommerce Week 5/26/2005).

"Our priority here is really expanding the capabilities on our growth platforms," he said last week during the call. "So, they're principally around product line extensions and technology bolt-ons. We do look at some consolidation plays, although I think that is a lower priority for us."

He added that one of the goals of any acquisitions the firm would make would be to accelerate organic growth, rather than making a larger consolidation play.

PE spokesman Dan Sutherby told BioCommerce Week that acquisitions would likely be in the areas of biomarkers, genetic screening products, and medical imaging, reiterating statements he made in July (see BioCommerce Week 7/14/2005). He declined to be more specific, but he said that PerkinElmer's annual biopharma revenue — which includes sales of tools for high-throughput screening, automation, liquid handling, biomarker discovery and proteomics — total about $500 million.

Sutherby noted that half of the firm's biopharma sales are reagents and consumables, and the other half is instrumentation. "For the past couple of years, we've had a $250 million to $300 million revenue stream from reagents," Sutherby said. "Are we going to continue to grow that? That is absolutely part of the plan."

Investors showed strong support for PerkinElmer's plans, sending the firm's shares up 7 percent to close at $22.07 on Friday — though the shares pulled back to close at $21.08 on Tuesday (see BCW Index). The announcement was made Thursday after the close of the market. In addition, RW Baird analyst Aaron Geist upgraded PerkinElmer's shares from "Neutral" to "Outperform."

Focus on Life Sciences

PerkinElmer has already reached an agreement to sell its aerospace business to Eaton for roughly $333 million — $326 million in cash and $7 million of assumed obligations under capital leases. The firm expects net cash proceeds of $240 million from the sale of that unit, which would have brought in revenue of $155 million to $160 million this year, according to CFO Robert Friel.

It anticipates selling the semiconductor and fluid-testing business for roughly $77 million, an amount nearly equal to the revenue those two businesses were expected to bring in this year.

Following the divestitures, which are expected to be completed by the end of the year, health sciences sales will account for 82 percent, or $1.23 billion, of PerkinElmer's estimated $1.5 billion in revenue, according to Friel. The remaining 18 percent of that amount, or $270 million, will come from sales of sensors and specialty lighting products to the photonics market — the other portion of the business it is retaining.

According to Summe, the firm is currently in negotiations with potential buyers for the semiconductor and fluid-testing businesses. He said there would be no changes to the corporate structure following completion of the deals, with the Life and Analytical Sciences division continuing to operate under that name.

PerkinElmer will be the second firm in the BCW Index to exit the semiconductor field this year in an effort to focus on life-science applications. Agilent Technologies sold its semiconductor unit in August to private equity firms Kohlberg Kravis Roberts and Silver Lake Partners for $2.66 billion (see BioCommerce Week 8/18/2005).

Agilent officials said that the sale would enable the firm to focus more on growing its Life Sciences and Chemical Analysis group, which has since been renamed the Bio-Analytical Measurement business. That segment has been one of the firm's more predictable and profitable businesses over the years.

— Edward Winnick ([email protected])

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