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Thermo, Fisher Customers Split on Firms Ability To Meet Merger Goals, Miffed at Less Competition

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While Thermo Electron and Fisher Scientific officials said this week that their merger would result in more accurate, cost-effective laboratory products, current customers interviewed by ProteoMonitor are split about the companies' ability to integrate their sales and support teams, and some say they dislike the idea of less market competition.

The $10.6 billion merger, disclosed this week, will create a company with $9 billion in annual revenues, 7,500 sales people, and 350,000 customers worldwide. The deal is scheduled to close in the fourth quarter, and the new company will be called Thermo Fisher Scientific.

Thermo CEO Marijn Dekkers, who will become head of the new company, said Thermo Fisher Scientific will enjoy the strengths of each of its principal parts and become a stronger play in the marketplace because of its ability to integrate those parts.

"Fisher traditionally focused more on consumables, and Thermo more on instrumentation," he said during a conference call this week. "As a result of this combination, we will truly have a complete tool set of customer solutions. We are uniquely positioned to enhance integrated lab solutions, and to provide the lab support services that our customers are asking for."


"I don't think they're going to do a good job integrating their technologies. … It's just going to be Fisher Scientific, only now we're going to order from Thermo Fisher Scientific. It's not going to make a massive difference."

Dekkers also said he expects the combined company to get better deals from suppliers. The companies estimate that their merger will generate $200 million in cost and revenue-related synergies in three years, with next year's synergies totaling around $75 million.

Some existing customers are skeptical that the deal will benefit consumers. "In my view, Thermo has all these parts — there's Thermo Finnigan, Thermo Savant, Thermo Hypersil — and there's not much cross-talk between those divisions," said Michael Myers, the director of proteomics at Cold Spring Harbor Laboratory who is a Thermo customer. "Based on that history, I don't think they're going to do a good job integrating their technologies. My view is it's just going to be Fisher Scientific, only now we're going to order from Thermo Fisher Scientific. It's not going to make a massive difference."

Plus, the customer support at Thermo is highly divided, Myers said. "If you call the wrong division, and you try to order something, they just can't help you," said Myers. "For example, if you're trying to order one Thermo Finnigan product, one Thermo Hypersil product, and one Thermo Electron product, it can take forever to get things ordered because you have to figure out which phone number to call to get Thermo Hypersil. It's not like some companies, like Sigma-Aldrich, where there's one number you call and one catalogue number. It's like General Motors. You can't go to a Chevrolet dealer and buy a Pontiac part."

Others customers are less skeptical. "I think it's a brilliant move," said Keith Solomon, an assistant professor in Orthopedic Surgery at Children's Hospital Boston who recently helped purchase $2.6 million worth of Thermo instruments for a new proteomics center at the hospital (see ProteoMonitor 3/2/2006). "From a customer's point of view, one company with an integrated sales team should be able to facilitate you getting everything you need, from hoods to incubators and disposables, to mass specs. And they may be able to give you a really good price."

John Neveu, a lab manager in Bill Lane's laboratory at Harvard University's Microchemistry and Proteomics Analysis Facility, agreed, saying the deal "is probably good for everybody. There should be some cost savings eventually with one-stop shopping and one-stop pricing."

However, Cold Spring Harbor's Myers and Sunny Tam, director of the Proteomic Fractionation Group at the University of Massachusetts Medical School Proteomic Consortium, dislike the idea of too much consolidation and too little marketplace competition.


The merger "is probably good for everybody. There should be some cost savings eventually with one-stop shopping and one-stop pricing."

"Pretty soon there's going to be two life science companies — there's going to be Thermo, and there's going to be Invitrogen," Myers quipped. "I think it requires a bit of competition to keep the prices down. I can't see [the merger] making things cheaper. I guess it depends on if Thermo is going to choose to turn some Fisher products into more turnkey solutions for their instrumentation, like the way Applied Biosystems has a kit for every instrument that they sell."

Tam said the merger is good for the companies, but not necessarily for the consumer.

"In the past, we saw a lot of competition for consumers, and it was good for the consumer," he said. "Less competition could be worrying for us from the researcher perspective. We'll have to see what the merger brings — a lot of times whole units disappear, and jobs end up being cut. It will be interesting to see how this ends up."

Thermo CEO Dekkers said he intends to develop the "interface" between Thermo's hardware and software and Fisher's chemical, biological, reagents, and consumables products.

"The way I look at it is that the chemist and physicist almost never work together, but the best is when you put the two together and work on the overlap and cross-discipline," he said during the conference call. "Our philosophy in terms of R&D is to look at workflow of the customer and to put the best possible solution in front of them. In this new combination, we're looking at how we can improve the alignment between equipment, instruments, and software in the most effective way."

Solomon, from Children's Hospital Boston, said that he could not think of anything in particular that a Thermo mass spectrometer would need in terms of specially designed plates or tubes, but "it's possible that there may be products that would be better fit for the instruments if the people selling the plasticware and other consumables also know about the specifications of the instruments."

Officials from Thermo and Fisher did not return calls seeking comment in time for this publication.

— Tien-Shun Lee ([email protected])

Terms of the Deal

Under terms of the Thermo-Fisher deal, Fisher shareholders will receive two shares of Thermo common stock for each share of Fisher held. Upon consummation of the deal, which is being structured as a reverse merger by Thermo, Thermo shareholders will own about 39 percent of the new company, and Fisher shareholders will own the remaining 61 percent.

Thermo CEO Marijn Dekkers will head the new Thermo Fisher Scientific. Paul Meister, vice chairman of the board for Fisher, will become chairman of the board of the combined company, while Paul Montrone, chairman and CEO of Fisher, will step down but remain as an advisor. Jim Manzi, chairman of the board of Thermo, will serve on the board of the directors of the combined company, which will be comprised of eight members — five nominated by Thermo, and three nominated by Fisher.

The companies said that the merger will be accretive to earnings, and Thermo expects 2007 adjusted earnings per share of the combined company to be in the range of $2.27 to $2.37, reflecting accretion of approximately 18 percent to Thermo's consensus 2007 adjusted earnings per share. Additionally, the deal is expected to result in a 20-percent compound annual growth rate in adjusted earnings per share over three years.

Thermo Fisher Scientific will be headquartered in Waltham, Mass., and will have an office in Hampton, NH, where Fisher is currently headquartered.

— Ed Winnick and Tien-Shun Lee

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