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In a Deal Redrawing Proteomics Map, Invitrogen Buying ABI for $6.7B

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Invitrogen’s plan to acquire Applied Biosystems for $6.7 billion in stock, disclosed this week, promises to shake up the proteomics tools field.
 
Greg Lucier, currently CEO of Invotrogen, will become chairman and CEO of the combined company, which will be called Applied Biosystems. Mark Stevenson, will retain his president and COO positions, the companies said.
 
The new company is anticipated to generate sales of $3.5 billion and will be based in Carlsbad, Calif., the current headquarters of Invitrogen.
 
Under terms of the $6.7 billion deal, Invitrogen will pay $38 per share of Applera-ABI stock in cash and stock. The expected split between cash and stock is 45 percent and 55 percent, respectively. The price, which is dependent on the price of Invitrogen stock leading up to the close of the transaction, represents a 17 percent premium to ABI’s closing price on June 11, the day before the deal was announced.
 
Rumors about an ABI acquisition had been in the air for some time, and ramped up as its parent firm, Applera, moved to separate ABI from its sister company Celera, a divorce expected to become final on July 1.
 
However, at first blush Invitrogen seems an unlikely suitor. Known primarily as a reagents and consumable company, Invitrogen has a very limited instrument business. In a statement Lucier said the acquisition would double its consumables business.
 
“This transaction combines the industry’s premier consumables provider with the industry’s premier systems provider to create a world-class biotechnology tools company,” he said. “With this acquisition, we are nearly doubling our consumables business as almost half of Applied Biosystems’ revenues are consumable in nature.”
 
The combined company will generate more than 70 percent of its revenue from consumables and services, the two companies said.
 
The deal instantly redraws the proteomics tools map, pulling together the top mass spectrometer company in the world with one of the leading reagents and consumables firms.
 

“This transaction combines the industry’s premier consumables provider with the industry’s premier systems provider to create a world-class biotechnology tools company.”

In terms of reach and product offerings, Thermo Fisher Scientific and Agilent Technologies will be the main competitors to the new company in the proteomics space.
 
The deal immediately pushes Invitrogen, which does not manufacture mass spectrometers, to the top of the heap in that space. Despite a slowdown in growth in its mass spec business during the last few quarters, ABI remains the market leader in the space.
 
ABI has a joint-venture agreement for its mass spec instruments with MDS Analytical Technologies. It was not immediately clear whether the ABI/Invitrogen deal will affect that partnership.
 
In a telling detail, the two companies said that the transaction will allow the new firm to compete in several rapidly growing markets: next-generation sequencing, cell biology, applied markets, and emerging geographies. No mention of mass specs was made.
 
In a statement, Stevenson said the newly combined company will allow both firms to grow more rapidly than they could have separately.
 
“Together, Applied Biosystems and Invitrogen will produce innovative new products that better meet the needs of our customers and expand opportunities for stockholders and employees,” he said.
 
The new company will have a sales and service team of about 3,000 worldwide. It will also hold more than 3,600 patents and licenses.
 
The deal is expected to be neutral to slightly accretive to Invitrogen’s earnings per share the first year and “significantly” accretive in year two. Cost savings are expected to reach approximately $125 million by year three, achieved through “enhanced sourcing and logistics efficiencies; site rationalization to achieve production scale; research and development optimization; and overhead synergies.”
 
Organic revenue growth for the company for the fiscal and calendar year is expected to be in the mid-single digits. Operating income is anticipated to reach $50 million annually from revenue synergies by year three of the merger.
 
Following completion of the deal, expected in the fall, the board of the combined company will be composed of nine current members of Invitrogen’s board and three members of Applera’s board. It was unclear what role Tony White, chairman and CEO of Applera, would have in the new company, if any.
 
Invitrogen will use cash on hand and proceeds from a fully underwritten debt financing from Bank of America, UBS Investment Bank, and Morgan Stanley to pay for the cash portion of the deal.

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