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Thermo Fisher Scientific to Acquire Contract Research Organization PPD for $17.4B

NEW YORK – Thermo Fisher Scientific said on Thursday that it has agreed to acquire clinical research services provider PPD for a total of $17.4 billion.

Under the terms of the agreement, Thermo Fisher will acquire PPD for $47.50 per share for a total cash purchase price of $17.4 billion, plus the assumption of approximately $3.5 billion of net debt. This represents a premium of approximately 24 percent to the closing price of $38.36 for PPD's common stock on the Nasdaq as of April 13, or a premium of 32 percent to the 60-day volume weighted average price up to and including April 13.

PPD provides a range of clinical research and laboratory services to pharmaceutical and biotech customers to help them accelerate their drug development productivity, Thermo Fisher said. It has more than 26,000 employees in nearly 50 countries, and generated revenue of $4.7 billion in 2020. Upon the completion of the deal, which is expected by the end of the year, PPD will become part of Thermo Fisher's laboratory products and services business unit.

"Pharma and biotech is our largest and fastest growing end market, and our customers value us as a strategic partner and an industry leader," Thermo Fisher Chairman, President, and CEO Marc Casper said in a statement. "The acquisition of PPD is a natural extension for Thermo Fisher and will enable us to provide these customers with important clinical research services and partner with them in new and exciting ways as they move a scientific idea to an approved medicine quickly, reliably and cost effectively."

In the long term, Casper added, the company will continue to invest in the combined company to further help its customers innovate and drive productivity.

Thermo Fisher also noted that the transaction is expected to be immediately and significantly accretive to its adjusted EPS, adding $1.40 in the first 12 months after close. The firm expects to realize total synergies of approximately $125 million by the third year after the close of the deal, consisting of approximately $75 million of cost savings and approximately $50 million of adjusted operating income benefit from revenue-related synergies.

In addition to both company boards having approved the transaction, shareholders holding a total of about 60 percent of the issued and outstanding shares of PPD's common stock have approved the deal by written consent. No further action by other PPD shareholders is required to continue the merger, Thermo Fisher said.

The company has obtained committed bridge financing to fund a portion of the purchase price, and said it intends to use proceeds from debt financing and cash on hand to fund the total transaction.

Barclays Capital and Morgan Stanley are serving as financial advisors to Thermo Fisher, and Cravath, Swaine & Moore and Arnold & Porter Kaye Scholer are serving as legal counsel. For PPD, JP Morgan Securities is serving as exclusive financial advisor, and Simpson, Thacher & Bartlett is serving as legal counsel.

In a note to investors on Thursday, Cowen analyst Doug Schenkel wrote that the price of the deal "appears reasonable," and that there's potential for revenue and cost synergies given the two companies' overlap in customers. However, he added, "we note that [Thermo Fisher] has not historically participated in the [contract research organization] space, and PPD appears dilutive to margins."

Although Schenkel acknowledged Thermo Fisher's assertion that the merger of the two companies will increase the opportunities for PPD to win additional work from existing and new customers, and that the combined company's capabilities and knowledge in serving the pharma and biotech industry will enable new drug development solutions for customers, he noted an assertion Casper made in 2018 about the CRO space.

"That's a business that is an important business, but it's one that we have never seen as a particularly strong fit with the company," Casper said at the time. "And some years ago, we had a small CRO, we actually divested it. So that's how we think about the CRO end market."

In his own note to investors on Thursday, SVB Leerink analyst Puneet Souda said he viewed the acquisition as positive and a good use of the cash flow generated throughout the COVID-19 pandemic from robust demand for Thermo Fisher's PCR testing products. Further, PPD's $4.7 billion in revenues in 2020 and the $5.7 billion in revenues the company was expected to make in 2022 "should 'plug the hole' from the reversal of COVID testing revenue that is likely to occur in 2H21/1H22 and puts [Thermo Fisher] in a better position to serve the biopharmaceutical and biotech customer segments," Souda added. 

Thermo Fisher's shares rose nearly 4 percent to $495.75 in Thursday morning trading on the New York Stock Exchange. PPD's shares rose 7 percent to $46.01 on the Nasdaq.

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