Two sister companies with business in proteomics said last week they want to morph into Siamese twins: Bruker Daltonics and Bruker AXS are planning to merge and become subsidiaries of a new company, to be called Bruker BioSciences.
The company, which will be headquartered in Billerica, Mass., is to offer both Bruker Daltonics’ mass spectrometry platforms and Bruker AXS’ x-ray crystallography equipment. It hopes to become a “leading tools provider for proteomics” and benefit from both its increased liquidity and size, and from cross-selling opportunities among the two companies’ customers.
Under the terms of the merger agreement, each Bruker AXS share is to be converted into 0.63 shares of Bruker Daltonics. Bruker AXS shareholders will have the option to receive 25 percent of their stock value in cash, a provision that was made primarily to provide two shareholders from the Laukien family — which owns roughly three quarters of each company — with sufficient cash to pay German capital gains taxes on the merger (in the US, the transaction is expected to qualify as a tax-free reorganization.)
The merger, which should be completed by June or July, results from a mix of financial, business, and scientific considerations, according to Frank Laukien, president and CEO of Bruker Daltonics and designated CEO of the new entity.
The two companies are hoping to increase their sales by cross-selling each other’s instruments, especially for protein analysis applications. This would allow AXS, which says it is the No.2 provider of x-ray crystallography equipment for protein analysis, after Rigaku, to gain an even stronger foothold in the life sciences. While Bruker Daltonics receives about 80 percent of its product revenues from the life sciences — more than half of that for proteomics applications — Bruker AXS’ life sciences business adds up to only a third of its overall business, about half of that related to protein analysis. Last year, Bruker Daltonics had product revenues of $116 million, and Bruker AXS had revenues of $104 million; however, Daltonics has a smaller customer base — about 1,000 labs in total — while AXS has sold systems to over 5,000 customers. To a lesser extent, Bruker Daltonics is also hoping to sell mass specs into non-life sciences industries already served by AXS, Laukien said.
Both companies are planning to keep their sales forces separate but train them in each other’s technologies in order to be able to create sales leads. However, analyzing hundreds of proteins by mass spectrometry is a different process than determining the detailed structure of a few by x-ray crystallography. Laukien admitted that the researchers using these instruments are not the same, “but they are probably in the same department, or they report to the same director of research if they are part of a pharmaceutical company.”
He also sees a trend in proteomics away from high-throughput identification of proteins towards more detailed analysis of proteins, which “favors a combination of these technologies and a joint marketing approach … even if the individual scientist in the lab probably does only one and not the other.” A number of customers have already approached Bruker Daltonics in the past, he added, inquiring about package deals for equipment from Daltonics and AXE.
Aled Edwards, a structural biologist at the University of Toronto, confirmed that x-ray crystallographers increasingly use mass spectrometry to help them characterize their proteins.
Both companies — together with Bruker BioSpin, which provides NMR equipment — already have strategic relationships with Affinium Pharmaceuticals and with GeneFormatics, which use various Bruker platforms for studying proteins. While these collaborations have not directly resulted in new products, they have “given us some new ideas for R&D for future products,” said Laukien.
Apart from pooling some international sales offices, the two companies are not planning to restructure or rationalize, and intend to retain their respective R&D and production facilities, although they might conduct some joint R&D. At the moment, Bruker Daltonics — which has 650 employees — has facilities in Billerica, Mass., as well as in Bremen and Leipzig in Germany. Bruker AXS has a staff of 560 and facilities in Madison, Wis.; Karlsruhe, Germany; Delft, the Netherlands; and Yokohama, Japan. No layoffs are planned, Laukien said.
What is the advantage, then, of a merger over a close collaboration? The reasons, according to Laukien, are primarily financial. For a start, the merger would save the companies — which are both listed on Nasdaq — $1.5-2 million per year in costs directly related to being publicly traded. Overall, the company is hoping to save $3-4 million per year in the long run by eliminating duplicate costs.
Perhaps more importantly, though, the new company might improve its perceived value on Wall Street by being double the size of its two units. “It’s very difficult to be a public small-cap company right now,” said Laukien, claiming that investors have recently been discriminating against smaller companies that have less cash available to them. Based on the current stock price for Bruker Daltonics, and revenues both companies reported last year, the new company would have a market capitalization of about $250 million, annual revenues of $220 million, and $75-$85 million in cash.
This improved liquidity would enable Bruker BioSciences to make further acquisitions, said Laukien, most likely in the areas of instrumentation, robotics, separation, and, potentially, consumables.
Bruker analysts agreed that the increased size and cash will likely help the merged company compete better against its publicly traded competitors — ranging from Waters to ThermoElectron — many of which are larger, have greater profit margins, and a wider global marketing reach, they said.
“The challenge will be to improve profitability,” said Lawrence Neibor, who covers both Bruker Daltonics and Bruker AXS for investment company Robert W. Baird. “They are both profitable, but not very.”
For 2002, Bruker Daltonics reported a GAAP net loss of $6.2 million, and Bruker AXS of $0.9 million. However, excluding special and restructuring charges, both companies made a profit of several cents per share last year, and analysts said they regard the companies as profitable.
— JK