TMO to Divest 3 Biz, Shares Gain - Analyst Blog


Shares of scientific instrument maker Thermo Fisher Scientific Inc. ( TMO ) rallied 2.05% on Tuesday as the company announced that it has inked a deal to divest 3 of its business divisions to GE Healthcare, a unit of General Electric Co. ( GE ).

Per the deal, GE Healthcare will buy Thermo Fisher's gene modulation, cell culture and magnetic beads businesses for about $1.06 billion.  The acquisition is expected to close in the first half of 2014.

This sell-out is vital from Thermo Fisher's point of view as the successful completion of this deal is necessary to expedite the European Commission's (EC) approval for the impending mega acquisition of Life Technologies Corp. ( LIFE ).

Notably, the company got the approval from European Commission last November. However, it was subject to certain criteria including the divestment of TMO's cell culture (sera and media), gene modulation and magnetic beads businesses. Collectively, these businesses, as part of TMO's Analytical Technologies segment, are expected to generate revenues of $250 million in 2013.

Besides this approval, Thermo Fisher also needs certain additional regulatory go-aheads to close the LIFE takeover. This includes a clearance from the U.S. Federal Trade Commission (FTC). The company is currently working on completing this transaction by early 2014.

Earlier in August, more than 98% of the shareholders of Life Technologies (representing more than 72% of the company's outstanding shares) had voted in favor of this merger agreement. On Apr 15, Thermo Fisher disclosed that it will acquire LIFE for roughly $13.6 billion plus the assumption of the latter's net debt ($2.2 billion as of year-end 2012).

The total price of the purchase of $13.6 billion includes cash and debt of $9.5-$10.0 billion and as much as $4.0 billion in equity. EC's support in this regard is considered to be a major positive and a big milestone for the deal to finally go through.

From the financial perspective, the buyout is expected to be immediately accretive to Thermo Fisher's adjusted earnings by 90 cents to $1.00 within the first full year of the takeover. Further, the acquisition is expected to create significant cost and revenue synergies for the company, with adjusted operating income synergies of $85 million in the first year.

From Life Technologies' point of view, given its expansive line of consumables for genomic and molecular and cell biology, the acquisition by Thermo Fisher will effortlessly strengthen the combined company's global foothold and commercial reach.

Currently, Thermo Fisher carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is Geospace Technologies Corp. ( GEOS ), carrying a Zacks Rank #2 (Buy).

GENL ELECTRIC (GE): Free Stock Analysis Report

GEOSPACE TEC CP (GEOS): Free Stock Analysis Report

LIFE TECHNOLOGS (LIFE): Free Stock Analysis Report

THERMO FISHER (TMO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: EC , FTC , GE , GEOS , LIFE

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