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Analysts Speculate on Potential Life Technologies Sale

NEW YORK (GenomeWeb News) – Following a spike in Life Technologies' share price after a report that the company may be searching for a buyer, investment firm William Blair today downgraded its rating for the company to Market Perform while several analysts weighed in on potential scenarios for a sale of the firm.

Speculation of a sale last week sent shares of Life Tech to a 52-week high of $62, leading to William Blair's downgrade. In a research note analyst Amanda Murphy wrote, "based on our view that at $61 now, the stock incorporates a meaningful portion of an M&A takeout premium."

For 2013 she further estimated revenues would grow at about 2.7 percent, below the consensus Wall Street estimate of 3.4 percent, saying that in recent weeks the threat of sequestration has increased, which would lead to cuts to National Institutes of Health funding.

Life Tech, Murphy said, may include the effects of sequestration when it issues guidance for 2013, but "it is not entirely clear that consensus estimates contemplate the full sequestration cut."

Separately, David Ferreiro of Oppenheimer raised his target price for Life Tech's stock to $67 from $58. He maintained an Outperform rating on the stock while raising the company's price target. He lowered his revenue estimate for 2013 to $3.9 billion from an earlier estimate of $4.0 billion, and lowered the EPS estimate for 2013 to $4.35 from $4.40.

Following last week's report and Life Tech's announcement that it has retained Deutsche Bank and Moelis to "assist in its annual strategic review," analysts were mixed in their assessment of a possible sale and a potential buyer.

Potential suitors that have been cited include the usual suspects in rumors of a possible life science sale — Thermo Fisher Scientific, Danaher, and Roche.

Cowen & Co.'s Doug Schenkel said in a research note today that those firms, along with Agilent, which has also been mentioned as a possible buyer, "are unlikely to pursue" Life Tech. He noted recent comments by management of the four firms, recent activity, and "potential limitations including outlined M&A criteria, and antitrust concerns."

Murphy said that Life Tech would offer a strategic buyer benefits from operating synergies, and a price of $65 to $75 per share "seems reasonable," but she also noted that a buy of the firm would be complicated. Any deal would face regulatory as well as shareholder approval, and "[m]oreover, it is not clear which company would step in."

Thermo Fisher seems to be a logical fit, Murphy said, but at $70 per share — the midpoint of the speculated leveraged buyout price — and with about 179 million shares outstanding, acquiring Life Tech would cost about $13.4 billion, which would "stress [Thermo Fisher's] balance sheet," Murphy said.

Danaher, meanwhile, has indicated that it may concentrate its M&A activity away from healthcare, she also noted.

Roche could be interested in Life Tech's next-generation sequencing business, but is unlikely to make an offer for the entire company "given certain antitrust complications with the PCR franchise," Oppenheimer's Ferreiro said in a research note.

However, he said that Thermo Fisher, Danaher, and GE "have the greatest rationale" for an acquisition, while a leveraged buyout is less likely. If a private equity firm does purchase Life Tech, it would likely spin out the Ion Torrent business, which could fetch a price of between $1.5 billion and $1.8 billion, he said.

"We view [Life Tech's] acknowledgement of hiring bankers as a signal of high motivation to consummate a deal," Ferreiro said. "We note that seven of 11 board seats are up for election this year, which could open up the door for activism should a deal fall through."

In Tuesday afternoon trade on the Nasdaq shares of Life Tech were up 1 percent at $61.60.