This Just In: Mergers Do Indeed Lower Costs

As the anniversary integration between Thermo Electron and Fisher Scientific approaches next week, Thermo Fisher Scientific (NYSE: TMO) announced third-quarter results that demonstrated how the integration is having a nice effect on the bottom line.

While revenue increased 7% on a pro forma basis as though the company was together in the third quarter of 2006, adjusted operating income rose 17%. The lowered costs of the combined company provided a 150-basis-point improvement of operating margins compared to the year-ago quarter. In addition to cutting costs by sharing overhead and personnel, the company is also dumping low-margin items it sells. That's creating a slight impediment to revenue growth but should improve overall margins down the line.

Just when you thought you could throw the pro forma basis out the window and start doing year-over-year comparisons of the merged company, management throws a wrench into your plans. Thermo has completed a series of acquisitions that have combined annualized revenues of nearly $200 million since August. That won't have a major effect on the top line (the company expects to bring in $9.5 billion this year), but management says it's not done yet.

It sounds like the company is going to continue to swoop up smaller companies, but I wonder if a larger acquisition might be a better use for the $847 million in free cash flow that it's generated year to date. Bio-Rad Laboratories' (AMEX: BIO) small- and medium-sized scientific equipment would certainly complement Thermo's large equipment line. Or perhaps it could convince Applera to let go of its Applied Biosystems (NYSE: ABI) business, although as Thermo moves more into clinical support of pharmaceutical and biotech companies, it probably wouldn't mind having Applera's Celera (NYSE: CRA) group, either.

Whether the company decides to go big or small with its acquisitions, any growth of its product offerings will certainly help it compete against Beckman Coulter (NYSE: BEC) and Sigma-Aldrich (Nasdaq: SIAL) to become the one-stop shop for scientific needs.

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• Illumina's Illuminating Results