TMO Wins LIFE Takeover Battle - Analyst Blog

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Finally, the much hyped takeover battle for Life Technologies Corporation ( LIFE ) came to an end on Monday with Thermo Fisher Scientific ( TMO ) emerging as the clear winner. The latter disclosed that it will acquire Life Technologies for roughly $13.6 billion (or $76 per share), plus the assumption of Life Technologies' net debt ($2.2 billion as of year-end 2012).

Rumor has it that Life Technologies preferred Thermo Fisher as a potential buyer against the consortium of private equity firms. Thermo Fisher was not willing to lose its chance to become an unparalleled industry leader to other potential buyers.

While the news of the deal sparked market optimism during early trading hours for both the companies, Thermo Fisher was in the red for the rest of the day. Nonetheless, the materialization of the bidding boosted investor sentiments helping Thermo Fisher and Life Technologies reach their respective 52-week highs of $84.55 and $73.50 on Monday.

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.

Within three years of the completion of the acquisition, Thermo Fisher envisages adjusted operating income synergy of $275 million comprising $250 million and $25 million of cost and revenue synergies, respectively. Apart from strong cash flow, the company also expects adjusted return on invested capital (ROIC) to surpass the cost of capital by the fourth year.

Thermo Fisher expects to close the acquisition in early 2014, subject to standard closing conditions and Life shareholder vote. 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. Thermo Fisher obtained the bridge financing from J.P. Morgan ( JPM ) and Barclays ( BCS ).

For most of the last 7 years, Thermo Fisher has supported its business momentum by acquiring several entities. Nevertheless, the acquisition of Life Technologies is the biggest ever deal for Thermo Fisher, since its inception in 2006. This acquisition, through a highly competitive bidding process, has helped the company prove its strength to continue with acquisitions and grow further.

Given Life Technologies' expansive line of consumables for genomic, and molecular and cell biology, the buyout will complement Thermo Fisher's market-leading portfolio of analytical technologies and specialty diagnostic. The takeover will seamlessly strengthen Thermo Fisher's global foothold and commercial reach.

The acquisition will create a kingpin in the research, specialty diagnostics and applied markets. As per management at Thermo Fisher, the acquisition supports its three-pronged growth strategy of technological innovation, a unique customer value proposition and expansion in emerging markets.

In addition, substantial expansion in the Asia-Pacific market, mainly China, is in the cards for the company. Given the huge potential in the region and high growth rate in China, Thermo Fisher is likely to exceed its goal of garnering 25% revenues from the high-growth Asia-Pacific region and emerging markets by 2016.

What's in it for LIFE?

The takeover should leverage Life Technologies' attractive revenue profile. It also looks forward to gain a competitive edge over other players in the market.

Despite the recent bullish run of Life Technologies, its closing price of $68.00 on Friday lagged well behind the price tag of $76 per share. Thus, the deal rewards Life Technologies shareholders. Even the new 52-week high of $73.50 underlines a premium, making the stock still appealing for investors. This Zacks Rank #2 (Buy) stock might still be worth a look at the current price.

BARCLAY PLC-ADR (BCS): Free Stock Analysis Report

JPMORGAN CHASE (JPM): 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 Nasdaq, Inc.

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

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