Within one year of the Phadia acquisition (for €2.47 billion),
in August 2011, which strengthened the company's Specialty
Diagnostics business,
Thermo Fisher Scientific
(
TMO
) yet again announced another strategic move to diversify its
offerings. The company has decided to acquire California based One
Lambda, the global leader in the filed of transplant diagnostics,
for $925 million in cash.
The deal value is inclusive of the cost of a three-year benefit
program undertaken by One Lambda for its key employees, amounts
payable to some shareholders for noncompetetion agreements and
other contingent payments.
One Lambda
& Transplant Diagnostic
Founded in 1984, One Lambda's diagnostic tests are used by
transplant centers for tissue typing. This determines the
compatibility of donors and recipients before the transplant is
done in addition to identification of antibodies that can lead to
transplant rejection.
As per the company, transplant diagnostics is an attractive
market, valued at $480 million in 2011, and growing in the mid- to
high-single digits. The potential for growth in this market is very
high given the increasing global demand for transplant procedures,
increasing utilization (tests per patient), and growing use of
post-transplant antibody monitoring. New evidence shows improved
graft survival on continued antibody monitoring.
One Lambda, with 320 employees, recorded $182 million in
revenues in 2011. With a wide customer base (1,400), One Lambda
derived 49% of its revenues from antibody detection, 44% from human
leukocyte antigen ("HLA") typing and the rest from serology. Thermo
Fisher expects to leverage its extensive network in the emerging
markets to drive uptake of One Lambda's portfolio of tests, which
is currently marketed in the US (59%) and Europe (21%).
Deal Funding & Synergies
Thermo Fisher expects the transaction to close in the fourth
quarter of the current fiscal. The deal is expected to be
immediately accretive and add 9−11 cents per share to the company's
adjusted earnings in 2013. It would also generate greater tax
efficiencies, and revenue and cost synergies leading to an adjusted
operating income benefit of about $15 million in 2015.
For now, the transaction will be funded partly by the company's
existing cash balance and through new debt financing. Thermo Fisher
exited the first quarter of 2012 with $788.3 million in cash and
cash equivalents compared with $1,016.3 million at the end of
fiscal 2011. The company's outstanding debt at quarter end was $6.7
billion.
Moody's Downgrades
Besides the acquisition, the company announced an additional
$500 million of stock repurchase authorization, through December
2012. As of June 30, 2012, the company had $250 million remaining
under its existing share repurchase authorization, which expires on
November 9, 2012. Although the debt burden will increase with the
proposed acquisition, we believe that the company will be able to
deal with it given its steady top-line growth and strong cash
flow.
Rating agency, Moody's, has however downgraded the senior
unsecured rating and all rated senior unsecured notes of Thermo
Fisher Scientific by one-notch to Baa1 from A3 with a stable rating
outlook. Moody's expects the company to incur an incremental $1.3
billion of debt to fund the acquisition and repurchase shares. The
agency expressed its concern over the company's strategy of funding
acquisitions through financial leverage and rewarding shareholders
through share buybacks and dividends.
Diagnostics Deals at Large
The year 2012 has witnessed several major deals in the
diagnostics space.
Agilent Technologies Inc.
(
A
) recently completed its acquisition of a Danish cancer diagnostics
company, Dako, for $2.2 billion (on a debt-free basis). In
addition,
Hologic
(
HOLX
), a prominent player in the field of women's health, is in the
process of acquiring
Gen-Probe
(
GPRO
). The deal is expected to close next month. This will entrench
Hologic's presence in the molecular diagnostics space.
We currently have a Neutral recommendation on Thermo Fisher. The
stock retains a Zacks #3 Rank (Hold) in the short term.
AGILENT TECH (A): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis
Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
THERMO FISHER (TMO): Free Stock Analysis Report
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