Thermo Electron, Fisher Scientific in Deal
Monday May 8, 4:32 pm ET
By Mark Jewell, AP Business Writer
Thermo Electron Agrees to Pay $10.6 Billion in Stock for Fisher Scientific
BOSTON (AP) -- Thermo Electron Corp. said Monday it will acquire the larger Fisher Scientific International Inc. for $10.6 billion in stock, in a deal to carve out a bigger share of the laboratory supplies business by offering the market's broadest range of products.
While analysts said the 7 percent premium Thermo is offering Fisher's investors on the price of their shares is relatively skimpy, the companies said the combination will create far stronger growth prospects than either partner could expect by continuing to go it alone.
The deal pairs Thermo Electron's core business making reusable scientific instruments with Fisher's strengths in producing single-use chemical agents and other lab equipment such as glass beakers and tubing.
"If you were to use a kitchen analogy, Thermo would be supplying the appliances, and Fisher would be the supermarket," said Quintin Lai, an analyst with Robert W. Baird & Co. "Right now in the life sciences tool space, we don't have anybody that has all this under one roof."
Rivals of Hampton, N.H.-based Fisher include Becton, Dickinson & Co., Corning Inc. and VWR International, with Waltham-based Thermo competing against Agilent Technologies Inc., Beckman Coulter Inc. and Wellesley-based PerkinElmer Inc.
The pairing of Thermo and Fisher is expected to create the largest global provider of research supplies and instruments, catering to industrial customers as well as labs in faster-growing markets in the health care, pharmaceutical, and drug- and environmental testing industries.
If the companies' shareholders and U.S. and European regulators approve the deal, the combined company would have more than $9 billion in annual revenue and 30,000 employees.
Thermo -- with $2.63 billion in revenue last year to Fisher's $5.58 billion -- will assume $2.2 billion in Fisher's debt in addition to paying $10.6 billion to buy the larger company.
Marijn Dekkers, Thermo's president and chief executive, will keep both those roles as head of the combined company, which will be named Thermo Fisher Scientific Inc. after the deal's expected closure late this year. Paul Montrone, chairman and CEO of Fisher, will step down to concentrate on new business opportunities while also advising the combined company.
Paul Meister, vice chairman of Fisher, will become chairman of the new company's board, which will consist of five members nominated by Thermo and three chosen by Fisher.
The combined company will be headquartered at Thermo's offices in Waltham and maintain an office 60 miles northeast at Fisher's headquarters in Hampton.
Dekkers said in a phone interview that the deal is expected to lead to "minimal job reductions," but he declined to be more specific.
"This is all about growth," Dekkers said.
Some analysts said the companies were not overreaching with their projections that the deal will yield 20 percent earnings growth over three years and $200 million in annual cost savings within that time.
The companies expect to streamline manufacturing, sales, delivery and administrative operations. They also expect gains from cross-promoting one another's products to 350,000 customers in 150 countries, especially in emerging markets like China.
"With complementary product portfolios and strong distribution channels, we believe the combined entity will be a formidable competitor," John Sullivan, an analyst with Leerink Swann & Co., said in a research report.
Deutsche Bank's Ross Muken said the deal will create "a health care behemoth with an attractive growth profile."
Allen Michel, a Boston University professor and expert in mergers and acquisitions, said the 7 percent premium Thermo is offering Fisher's investors to convert their shares into Thermo stock pales in comparison to the 15 to 20 percent premiums typically offered in acquisitions.
While Fisher shareholders ultimately could benefit if the combined company's growth projections pan out, some may not want that risk, Michel said.
"If I were a Fisher shareholder, I'd be concerned that I'm not going to see a rate of return that is reasonable for an acquisition of this sort," he said.
Fisher shareholders will receive two shares of Thermo common stock for each Fisher share. Based on Thermo's closing price of $39.45 per share on Friday, the offer represents a value of $78.90 per Fisher share -- a 7 percent premium over Fisher's closing price of $73.73 on Friday.
Thermo's shareholders would own about 39 percent of the combined company, and Fisher shareholders about 61 percent.
Fisher's shares rose $2.22, or 3 percent, to close at $75.95 on the New York Stock Exchange after reaching a new 52-week high of $82.05 earlier in the session. Thermo's shares fell 91 cents, or 2.3 percent, to $38.54 after rising to a 52-week high of $41.85 earlier in the day.
Both companies have bought up smaller lab supply companies in recent years, and executives said the merger would leave them with enough cash to continue making acquisitions.
Meister said some of the two companies' smaller business units have discussed partnerships for years, but it was only recently that the companies discussed a merger.
Fisher Scientific International Inc.: fisherscientific.com
Thermo Electron Corp.: thermo.com
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