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Is Thermo Fisher Getting a Good Deal With Life Technologies?

By Keith Speights - Apr 15, 2013 at 10:42AM

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Thermo Fisher buys Life Technologies for $13.6 billion, but is it a good deal?

Thermo Fisher Scientific (TMO -2.65%) announced today that it will acquire genomics company Life Technologies (NASDAQ: LIFE) in a $13.6 billion deal. The agreement calls for Thermo Fisher to pay $76 per diluted share, as well as assume around $2.2 billion in Life Technologies' debt.

Leading up to the sale
Life Technologies attracted the interest of several parties when it first announced plans to look for a buyer in January. At that time, reports indicated that at least four private equity firms were approached. 

Considerable speculation also centered around the possibility that Roche (RHHBY -0.54%) could entertain an offer. Roche had previously pursued an acquisition of Life's rival Illumina (ILMN 0.89%). However, the potential deal broke down because Illumina wanted a price higher than what Roche was willing to pay. Roche's chairman made comments then that strongly hinted the company could go after another target. Life Technologies seemed to be a strong possibility.

Ultimately, Roche didn't end up in the final hunt while others did. Sigma-Aldrich, a maker of chemicals for labs and other life sciences organizations, was one of two parties looking to buy Life Technologies. The other was a private consortium made up of Blackstone Group, Carlisle Group, KKR, and Temesek Holdings.

Reuters reported that the private consortium's highest bid came in at $67 per share, well below that of Thermo Fisher. No details were available on amounts offered by Sigma-Aldrich.

In the end, Life Systems' board of directors went with the higher bid from Thermo Fisher. The price represents a 12% premium over the stock's closing price last week.

Good deal?
There's really no question about whether this is a good deal for Life Technologies. It definitely is.

Life's stock traded at less than $55 per share the day before the company announced its plans to find a buyer. And those levels were the highest in well over a year. With the acquisition, shareholders benefit from a 38% increase compared to mid-January.

But did Thermo Fisher get a good deal? The large lab equipment and services company isn't really getting a bargain. Life Technologies' price-to-earnings multiple already looked high.The $76 per share price topped what many analysts though the stock would fetch.

There are some cost synergies, but not enough to get excited about. Thermo Fisher estimates that by year three it should see $250 million of cost synergies and another $25 million of revenue synergies.

However, what Thermo Fisher does get is a nearly $4 billion per year business that complements its current products. The deal also enables the company to jump headfirst into the hot area of genomic testing. Customers seem likely to appreciate the wide array of services that will be available with the combined companies.

My view is that the two companies make a good fit, and the potential exists for the combination to work out really well. How great was the deal itself, though? Only time will tell.

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Stocks Mentioned

Thermo Fisher Scientific Inc. Stock Quote
Thermo Fisher Scientific Inc.
TMO
$534.27 (-2.65%) $-14.55
Roche Holding AG Stock Quote
Roche Holding AG
RHHBY
$42.99 (-0.54%) $0.23
Illumina, Inc. Stock Quote
Illumina, Inc.
ILMN
$242.40 (0.89%) $2.14
KKR & Co. Stock Quote
KKR & Co.
KKR
$50.60 (1.22%) $0.61

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