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Invitrogen to Acquire Applied Biosystems for $6.7B

This article has been updated to include comments, background information, and stock quotes.
NEW YORK (GenomeWeb News) – Invitrogen and Applied Biosystems announced today that Invitrogen will acquire all of the outstanding shares of ABI in a cash and stock deal valued at $6.7 billion.
The acquisition combines Invitrogen’s portfolio of reagents and low-cost instruments focused on the molecular and cell biology and protein research markets with ABI’s vast array of consumables and instruments for applications such as DNA sequencing, proteomics, RNAi, gene expression, and applied testing.
“There are some very compelling macrotrends that make this combination very attractive,” Invitrogen Chairman and CEO Greg Lucier, who will retain that position with the combined firm, said during a conference call today. “It gives both of our companies access to high-growth markets, opening up opportunities for accelerated revenue growth.”
He added, “The promise of this combination is, when joined, we are the best positioned company in the industry to achieve reagent-instrumentation optimization across many of the key workflows in the laboratory.”
The deal comes following a review conducted by Morgan Stanley that began last August, in which the bank was to give an opinion on a restructuring of ABI and its sister company Celera, both of which are traded as tracking stocks of parent firm Applera. That review led to a recent decision to split ABI and Celera, with the latter filing a registration statement to effect the change.
Applera Chairman and CEO Tony White said during the call that the split with Celera is proceeding, and ABI officials hope to get it done by the planned date of July 1. However, the split could be delayed depending on how quickly the SEC reviews and approves amended filings related to the split, said White.
He also noted that ABI had direct contact with other interested parties but narrowed its focus about five or six weeks ago to a merger with Invitrogen.
The deal would be the largest in the life sciences tools market since Thermo Electron bought Fisher Scientific for $10.6 billion in 2006. Similar to that deal, the combined operations of Invitrogen and ABI would create a nearly one-stop shop for life science research customers focused on end-to-end workflows.
“I think it is a very positive move for both entities,” Harry Glorikian, managing partner of Boston-based life sciences consulting firm Scientia Advisors, told GenomeWeb Daily News.
“They essentially become somewhat of a category killer if they have the right combinations of technology and solutions,” he said. “There are, however, some very capable and nimble companies out there today that in niche markets” will remain competitive.
The combined company, which will retain the Applied Biosystems name but will be based at Invitrogen’s headquarters in Carlsbad, Calif., will have approximately $3.5 billion in revenue, of which roughly 70 percent will come from consumables and services.
“Invitrogen has capabilities — antibodies, beads, labels, enzymes, and assay development and kits assembly competencies — to significantly enhance AB’s product offerings and to leverage our systems capabilities to create new applied market systems,” ABI President and COO Mark Stevenson, who will maintain that title with the merged firm, said during the call. 
One area the firms are heavily focused on is the next-generation DNA sequencing market. ABI already sells the SOLiD system into this market, and Invitrogen has quietly been working on its own complementary technologies.
“Invitrogen is currently investing in third-generation sequencing technologies and would have been required to spend considerable resources to commercialize a system independently,” said Stevenson. “By combining our efforts in this area, the new company can accelerate these efforts and drive the cost of sequencing down toward the $1,000 genome, enabling new applications across research and applied markets.”
Analysts on the call were particularly interested in Invitrogen’s plans for ABI’s mass spectrometry business, which sells products through a joint venture with MDS and would appear not to fit Invitrogen’s model of selling instruments that have a high consumable pull-through.
Lucier said that 90 percent of ABI’s business is “an absolutely perfect fit,” and said that the firm intends to continue running the mass spec business going forward with ABI's partner, MDS.
However, he said going forward, “when we think about other instruments we want to provide and create, I think it’s clear we want to do that in a way that the instrument will consume reagents and services down the road.”
Lucier also noted that although the firm will carry the ABI name, the Invitrogen brand name will remain for the reagents it already sells. “It’s important that both brands be maintained,” he said.
The board of directors of the combined firm will include nine current Invitrogen board members and three ABI board members, though the firms did not disclose the names of those directors.
The merged entity will boast a sales and service force of approximately 3,000 employees and have customers in more than 100 countries. Lucier noted that the firm would spend more than $300 million annually on R&D, and employ over 1,000 scientists.
Following the first full year after close of the transaction, the firm expects to report mid-single digit organic revenue growth, and neutral to slightly accretive to earnings per share, said Invitrogen CFO David Hoffmeister, who will hold the same post with the combined company.
Under terms of the deal, ABI shareholders will receive $38 for each share they own in the form of Invitrogen stock and cash, with cash accounting for 45 percent of the split. The purchase price represents a 12 percent premium to ABI’s average closing price for the previous 30 trading days.
Invitrogen will pay for the transaction with cash on hand and roughly $2 million of new debt, Lucier said during the call. The debt is being financed by Banc of America, UBS Investment Bank, and Morgan Stanley.
The firms expect the transaction to close in the fall, pending regulatory and shareholder approval.
The break-up fee, should one of the parties pull out of the deal, is roughly $150 million, ABI officials said during the call.
In mid-afternoon trade on Thursday, shares of ABI were up 6.3 percent at $34.48 on the New York Stock Exchange, while shares of Invitrogen tumbled 9.1 percent to $39.39 on the Nasdaq.
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