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Thermo Fisher Buying Life Technologies for $13.6B

NEW YORK (GenomeWeb News) – Thermo Fisher Scientific is acquiring Life Technologies in a $13.6 billion deal, the firms jointly announced today.

Thermo Fisher was rumored over the past couple of weeks to be in advanced talks to acquire Life Tech, while private equity firms also had been reported as working on bids to get a deal done. The transaction signing comes three months after Life Tech confirmed it had hired Deutsche Bank and Moelis to "assist in its annual strategic review," following a report from a Canadian news organization that Life Tech was seeking a buyer.

Thermo Fisher will pay $76 per share to acquire Life Tech and assume $2.2 billion of net debt. Life Tech had $3.8 billion in 2012 revenues and has a market cap of around $11.6 billion. Thermo Fisher had 2012 revenues of $12.51 billion.

Thermo Fisher said that it has obtained committed bridge financing from JP Morgan and Barclays. It expects to pay for the deal through a combination of $9.5 billion to $10 billion in cash and debt and up to $4 billion in equity.

"The acquisition of Life Technologies enhances all three elements of our growth strategy: technological innovation, a unique customer value proposition, and expansion in emerging markets," Thermo Fisher President and CEO Marc Casper said in a statement. "Our customers in research and applied markets will now be able to achieve even higher levels of innovation and productivity by working with the combined company."

The firms expect to close the deal in early 2014. The transaction is subject to approval from Life Tech's shareholders and customary closing conditions.

On a conference call this morning, Life Tech Chairman and CEO Greg Lucier said the deal represents the "successful conclusion to our board's strategic review to enhance stockholder value and develop an even stronger future for our company."

The firms said that they expect $275 million of adjusted operating income synergies in the third year following close of the deal, consisting of $250 million in cost synergies and $25 million in revenue synergies. Thermo Fisher also said that it expects the deal to be "significantly and immediately accretive" to its adjusted EPS.

Thermo Fisher CFO Peter Wilver added on the call that the deal is expected to add $.90 to $1.00 to adjusted EPS in the first full year after the close of the acquisition. He also said that the company is committed to paying out a dividend to shareholders and will increase the amount over time.

With the deal, Thermo Fisher becomes a major player in the next-generation sequencing space, an area in which the company has historically taken a back seat. Casper said that Life Tech is the number two player in the space, but "it has been gaining share recently and has a very exciting technology pipeline."

While Thermo Fisher is modeling overall organic growth of 3 percent for Life Tech, Casper said that Life Tech's Ion Torrent business is anticipated to grow at a "much faster rate," and profitability within that business will improve over time.

"It's an aggressive growth rate, so there [are] significant investments to fuel that growth, but we expect there'll be a nice return over time," Casper said.

He said that for the moment there is no thought to divesting any of Life Tech's businesses and the focus is on growing the entire portfolio. Dan Leonard of Leerink Swann said in a note this morning, however, that "smaller pieces of the combined [Life/Thermo Fisher] portfolio might need to find new homes to enable this combination, which creates an opportunity for peers."

Areas of overlap include Thermo Fisher's Finnzymes and HyClone businesses. He added there is overlap in the protein biology businesses, "but that is a more fragmented market.

The company did not say what role, if any, Lucier will have with the combined company, though Mark Stevenson, president and COO of Life Tech, will have a "significant leadership role" in the combined firm. Lucier added that there are programs in place to retain Life Tech talent after the close of the deal but did not provide additional details.

In addition, one Life Tech board member will be invited to join Thermo Fisher's board, but that individual has not yet been identified.

Based in Waltham, Mass., Thermo Fisher has about 39,000 employees, while Carlsbad, Calif.-based Life Tech has more than 10,000 employees.

Thermo Fisher was born out of a $10.6 billion merger between Thermo Electron and Fisher Scientific in 2006. Life Tech resulted from a $6.7 billion merger in 2008 that brought together Invitrogen's portfolio of reagents and low-cost instruments for molecular and cell biology research as well as protein research, and Applied Biosystems' consumables and instruments targeting DNA sequencing, proteomics, RNAi, gene expression, and applied testing.

That deal followed a decision by ABI's parent firm Applera to split ABI and its sister company Celera, which had been trading as tracking stocks of Applera. Originally, the merged ABI/Invitrogen company planned to keep the ABI name but eventually adopted Life Technologies as its moniker.

At the time of the merger, ABI had a mass spectrometry joint venture with MDS Sciex, and together they were generally regarded as the market leader in the mass spec space, though Thermo Fisher was closing the gap. Life Tech officials maintained that it would keep the mass spec business, even as that business was in the midst of a sharp downturn, as GenomeWeb Daily News sister publication ProteoMonitor reported at the time.

Mass specs, however, never fit with Life Tech's business model, which was based on the sales of reagents and consumables with newly acquired instruments offered by the firm, and in 2009, it and MDS Sciex sold the mass spec business to Danaher as part of a larger $1.1 billion deal.

Since then, it has staked its future on next-generation sequencing technology, although it also sells instruments for DNA analysis, such as CE sequencers and PCR platforms, and in total sells more than an estimated 50,000 products.

In recent years, Life Tech has waged a battle with Illumina for control over the high-throughput sequencing space, and that competitive skirmish has now extended to the desktop sequencing market.

Crucial to Life Technologies' entry and growth in the desktop space has been its 2010 acquisition of Ion Torrent for up $725 million. Founded by Jonathan Rothberg, who had previously founded RainDance Technologies and 454 Life Sciences, a sequencing firm that Roche bought in 2007, Ion Torrent developed a platform called the Personal Genome Machine, which used polymerase-based sequencing-by-synthesis chemistry, but without a need for lasers, cameras, or labels. Instead the technology reads DNA on a semiconductor chip by measuring the release of hydrogen ions as nucleotides are incorporated by DNA polymerase.

Last year, Life Tech launched the Ion Proton platform, which also uses the same semiconductor-based technology as PGM.

In addition to sequencing, Life Tech has moved in the diagnostics arena and in the past year has acquired Compendia, Pinpoint Genomics, and Navigenics, as well as forged deals with CollabRx and Ingenuity Systems as part of that effort.

With its market cap of $11.6 billion, Life Tech ranks among the largest life science tools companies in the world. Yet, there was also a sense that its stock has underperformed.

In September investment bank William Blair initiated coverage of the company, and in a research note analyst Amanda Murphy said, "Valuation is arguably inexpensive for a company that generates stable earnings growth and robust cash flow."

In a report issued in January, after it became publicly known that Life Tech was engaged in seeking a buyer, Jon Groberg, an analyst at Macquarie Research, wrote that the firm is "well-positioned to benefit from the increasing demand for molecular, genetic, and cellular information and understanding, providing, in our view, a remarkably stable and underappreciated revenue base."

He added that "investor sentiment is too low on [Life Tech's] franchise and highlight that in a recession [it] is one of the few stocks where 2012 estimates look reasonable and are potentially conservative. … [Life Tech's] absolute and relative earnings multiples have plenty of room to expand as the stock currently trades at a discount to both its historical absolute and relative averages."

William Quirk, an analyst at Piper Jaffray said that he does not anticipate additional bidders to emerge as the deal awaits regulatory approval to be completed. He said, though, that potential disruptions, such as employee turnover at Life Tech, could represent an opportunity for competitors including Illumina to gain share.

In Monday morning trade on the Nasdaq, shares of Life Tech jumped nearly 8 percent to $73.16, while shares of Thermo Fisher climbed 2 percent to $81.40 on the New York Stock Exchange.

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