Thermo Fisher-LIFE Deal Ok'd in China - Analyst Blog

Subsequent to the European Commission's (EC) conditional approval of the impending $13.6 billion (or $76 per share) acquisition of Life Technologies Corp. (LIFE), Thermo Fisher Scientific, Inc. (TMO) recently received the Chinese regulatory nod for the same. As per several recent reports including one from Reuters, China's Ministry of Commerce lately approved Thermo Fisher's acquisition of Life Technologies subject to certain conditions.

These conditions include divestment of TMO's cell culture and gene modulation business, price cuts on two of the company's products (SSP kits and SDS-PAGE protein standards) that are sold in China, and sale of Thermo Fisher's 51% stake in China's Lanzhou National Hyclone Bio-engineering Co Ltd.

We note that, some of these conditions are similar to those demanded by the EC which conditionally cleared the deal in November. Last week, to fulfill the conditions put forward by the EC, Thermo Fisher 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. 

In addition, Thermo Fisher needs certain other 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.

In Aug 2013, 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. Prior to that, on Apr 15, Thermo Fisher had disclosed its plans to 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 purchase price 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 should create significant cost and revenue synergies for the company, with expected adjusted operating income synergies of $85 million in the first year.

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).