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Agilent Plans to Buy Varian for $1.5 Billion to Expand Footprint in Life Sciences

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This story originally ran on July 27 and has been updated to include additional comments.

By Tony Fong

Agilent Technologies continued to bet on the life-science sector on Monday, announcing it plans to spend $1.5 billion to purchase instrument and vacuum company Varian.

From a proteomics perspective, the purchase is not expected to have a profound effect on Agilent, even though Varian has a fleet of LC/MS and Fourier transform mass specs that have use in proteomics and protein analysis.

For Agilent the deal — the largest life-science acquisition it has ever made — is a "major step" in its continued push into the life-science space, Bill Sullivan, president and CEO of Agilent, said in a statement.

"While we continue to be a world leader in electronic measurement, our biggest opportunities for future growth are in bio-analytical measurement," he said.

In May during its most recent earnings call, the company reported that revenues for its Bio-Analytical Measurement segment declined 6 percent year over year for its fiscal second quarter while overall receipts fell 25 percent. The Electronic Measurement business shrunk 33 percent year over year.

That led Sullivan to call the BAM business, and its life-sciences segment in particular, "the hottest hand we're playing. ... We have great momentum, and … can make these tradeoffs and continue the investment in what is now the largest market in measurements and one that we continue to do very well." [see PM 05/21/09].

Harry Glorikian, managing partner for life-science consulting firm Scientia Advisors, said that the deal benefits Agilent on a number of fronts, adding "girth" to its portfolio of products, including those for proteomics.

"They're going to broaden the mass-spec portfolio for Agilent, they're bringing imaging and X-ray crystallography and other pieces to the puzzle," he said, adding the purchases expand Agilent's line of chromatography systems.

In proteomics, Varian is not a major presence, though in 2007 a company official told ProteoMonitor that it was a field in which the company was looking to gain traction [see PM 04/05/07]. However, its fleet of mass specs has been deployed mostly for environmental and food testing and toxicology testing.

In addition to mass specs, Varian, headquartered in Palo Alto, Calif., sells HPLC systems, nuclear magnetic resonance spectroscopy systems, magnetic resonance imaging instruments, consumables, and other products.

Floating Frontlines

Company officials declined to comment beyond its statement, which said that the purchase broadens its portfolio offerings in the life sciences, environmental, and energy and materials markets. It also expands its presences in molecular spectroscopy, "establishes a leadership position" in NMR, imaging and vacuum technologies, and strengthens its consumables portfolio.

Glorikian said that though the applied markets is where Agilent may get the biggest bang for its buck, life sciences will benefit as well, particularly since the line between pure life science research and chemical analysis is increasingly being smudged.

"You used to be able to put a stake in the ground and say, 'You guys are over here, and we're over there.' Now you're seeing these technologies kind of float," he said.

Overall, he said, the deal provides Agilent "a broad footprint to work from to build up its Bio-Analytical Measurement business though how it will carry out the integration will be important.

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"It's strategically what stuff goes into life sciences versus what goes into the analytical group and the go-to-market and product rationalization, portfolio rationalization," Glorikian said. "That's something that they're going to have to really [figure out]. …Otherwise, they may not achieve all the cost savings and revenue synergies that they would ultimately like to see."

Two of Agilent's competitors in the proteomics space offered different views of the significance of the deal on the marketplace. During a conference call accompanying the release of his firm's second quarter earnings results this week, Douglas Berthiaume, chairman and CEO of Waters, said he believed that the proposed deal has little effect on the landscape, and expressed doubt that a combined Agilent/Varian entity would be more competitive than if the companies operated separately.

Varian "wasn't a particularly big competitor in the core liquid chromatography business," he said, adding it may have been more of a presence in gas chromatography, and "is not particularly big in the mass spectrometry world," either. "So I don't see [the acquisition] changing a whole lot of competitive balance in the tools space," Berthiaume said.

Frank Laukien, president and CEO of Bruker, said during a conference call accompanying the release of his firm's earnings that he sees it differently.

"We compete with Varian in numerous fields, of course in NMR, in preclinical MRI, but also in some parts of mass spec and X-ray and even infrared areas," he said. "So we have many areas of overlap and compeititon with Varian.

"We compete with Agilent in certain areas, so we do think the combination of the two, if it occurs, will have a very significant effect on the competitive landscape, from Bruker's view," Laukien added.

In a statement, Garry Rogerson, chairman and CEO of Varian, said that his firm and Agilent bring expertise and experience across a set of different but complementary markets and applications. While Agilent is a "leader in food safety," Varian is "established in the energy industry, and has a broad spectrum of products for environmental analysis," he said.

The company employs 3,600 people worldwide. Separately today, Varian reported revenues for its fiscal third quarter ended July 3 fell 19.6 percent year over year to $196.6 million. Receipts for its Scientific Instruments division fell 16.4 percent, compared to the third quarter of 2008, to $167.9 million while Vacuum Technologies revenues slid 34.3 percent to $28.7 million year over year.

For fiscal 2008, Varian reported sales of slightly more than $1 billion, up 10 percent from 921 million in its fiscal 2007.

As part of the today's deal Agilent will pay $52 for each share of Varian stock, representing a 35 percent premium to Varian's closing price on July 24. Prior to this week's announced deal, Agilent's largest purchase in the life sciences was its 2007 acquisition of Stratagene for $250 million, according to a company spokesman.

The boards of both Agilent and Varian unanimously approved the all-cash offer, the companies said in a statement.

The deal is expected to generate $75 million in annual cost synergies and meet Agilent's target of 20 percent return on invested capital within four to five years, it said. The acquisition is expected to close before the end of the year.

Upon its completion, Adrian Dillon, executive vice president and chief financial officer of Agilent, will oversee the merger of Varian operations with Agilent's Bio-Analytical Measurement business.

Based in Santa Clara, Calif., Agilent has 19,000 employees.

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