mstar: Thermo and Fisher to Merge
by Emil Lee | 05-08-06 | 8:59AM
On Monday, two titans of the lab and analytical equipment industry, Fisher Scientific FSH and Thermo Electron TMO, agreed to merge. We'll need some time to review the combined company's prospects, but at first blush, we believe the deal is good for shareholders of both parties. Although Thermo is technically the acquirer, the deal is really a business combination, with Thermo offering Fisher stockholders two Thermo shares for each Fisher share. This amounts to an 8% premium over our Fisher fair value estimate of $73 per share. Based on our fair value estimates, Thermo is contributing 38% of the value of the combined company, and Fisher 62%. We think both parties got a fair shake.
We are positive on the deal because we think Fisher and Thermo offer complementary strengths. Thermo's traditional strength is in hardware, analytical instruments, and software and services for sample preparation, sample analysis, and data management. Fisher has more expertise in lab consumables and reagents. These different skill sets are highly complementary because the two firms sell to the same end-customers, and often sell complementary products for the same R&D function. Furthermore, because the premium paid by Thermo was small, we think any synergies created by the combined company will be pure gravy to shareholders. Management targets a modest $150 million in cost savings from basic functions such as manufacturing rationalization, leveraging bargaining power with suppliers, and cutting administrative costs. We are huge fans of Fisher's fiscal discipline and don't doubt that cost savings will directly benefit shareholders.
We like the planned merger because it makes sense for the customer. Fisher's distribution strength allows it to peddle Thermo's technology in new geographic markets. Also, the combined company can mix and match products to provide a better combination of integrated offerings. This should benefit the R&D scientist, who can get products from the combined company that better optimizes the lab workflow, and for the lab purchasing manager, who can consolidate more purchasing from a single source. While we think cost savings from the deal will be minor, we believe there is upside for revenue growth due to greater cross-selling capabilities.
|
