Thermo Fisher Purchase of FEI Company Conference Call: Full Transcript

{Operator:} Ladies and gentlemen, thank you for standing by. Welcome to today's Conference Call and Webcast, to discuss Thermo Fisher Scientific Inc. TMO Acquisition of FEI Company FEIC. At this time all participants have been placed in a listen-only mode. The call will be opened for your questions following the presentation. If you would like to ask a question please press star, then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue press the pound key. We ask that you please pickup your handset to allow optimal sound quality.

I would now like to turn the call over to Ken Apicerno, Vice President of Investor Relations at Thermo Fisher Scientific. Please go ahead sir.

{C:Kenneth Apicerno:Vice President Investor Relations:} Thank you and good morning everyone. Welcome to our conference call to discuss Thermo Fisher's acquisition of FEI, which was announced earlier today. On the call with me today is Marc Casper; our President and Chief Executive Officer, Stephen Williamson; our Chief Financial Officer, Dan Shine; Senior Vice President and President of Analytical Instruments, and Don Kania; President and Chief Executive Officer of FEI. You will find the brief slide presentation in Investors section of our website, under the section titled webcast and presentations that we will be walking through this morning. After our prepared comments, we will open it up for Q&A.

So before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may make about Thermo Fisher's future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors that set forth in Thermal Fisher and FEI's most recent Annual Reports and current reports which are filed with the SEC and available on our respective website, as well as the possibility that expected benefits related to the transaction may not materialize as expected.

Transaction not being timely completed, if completed at all, prior to the completion of the transaction, FEI’s business experiencing disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, licensees, other business partners or governmental entities, difficulty retaining key employees, and the parties being unable to successfully implement integration strategies or to achieve expected synergies and operating efficiencies within the expected time-frames or at all.

While Thermo Fisher or FEI may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change and therefore you should not rely on these forward-looking statements is representing a view as of any date subsequent to today. Also during the call, we'll be referring to certain financial measures not prepared in accordance with Generally Accepted Accounting Principles, or GAAP such as adjusted EPS, adjusted operating income, adjusted EBITDA, adjusted ROIC and free cash flow. We believe that the use of these non-GAAP measures helps investors to gain a better understanding of our cooperating results and future prospects consistent with how management measures and forecast the company's performance especially when comparing such results to previous periods or forecasts.

So with that I'll now turn the call over to Marc.

{C: Marc N. Casper: President and Chief Executive Officer:} Thank you, Ken. Good morning everyone and thank you for joining us on short notice. I am going to start on Slide 4.

We are very excited to talk to you today about our acquisition of FEI, the leader in high performance electron microscopy. As you'll hear this morning, FEI is an outstanding strategic fit with our Company. FEI's products and services are highly complementary to our own and will create new growth opportunities for us and some very attractive markets; such as structural biology and material sciences. More on that later.

This transaction is also compelling from a financial perspective, a quick snapshot on the deal. This is an all cash transaction and we are paying a $107.50 per share. We expected to be immediately and significantly accretive to adjusted EPS, it has a strong return on investment profile and we expect to complete the transaction by early 2017.

Before I get into the details, I'd like to turn the call over to Don Kania to make a few comments about the transaction. Don?

{C:Don R. Kania: President and Chief Executive Officer of FEI:} Thank you, Marc. I want to acro Marc's sentiments about how excited we are about this transaction which will enable us to drive and grow as part of the world leader in serving science.

Let me briefly review why we believe this is a win for all FEI stakeholders. First, this transaction offers immediate and significant value for our shareholders who, as Marc said will receive $107.50 per share in cash for each share of FEI they own. Our customers will benefit through the global scale and depth of capabilities that Thermo Fisher brings, allowing us to more effectively reach new customers.

With Thermo Fisher's industry leadership, we will be better position to continue to capitalize on the growing adoption of electron microscopy across all our markets and especially in life sciences. This transaction is testament to the tireless efforts of our employees, who have help build FEI into the leader and high performance electron microscopy. Importantly Thermo Fisher shares are commitment to innovation and intense focus on customers. We believe this combination will offer our employees exciting new opportunities as part of the global industry leaders a rapidly growing Company.

In summary, we are pleased to be joining Thermo Fisher and our confidence that together, we can drive significant value for our customers and our shareholders. With that I will turn the call back over to Marc.

{C:Marc N. Casper:} Thanks Don. Turning back to the presentation, slide 5 provides a quick snapshot of FEI. As many of you may know FEI is the leader in electron microscopy with a broad portfolio of serving customers primarily across life sciences and material science markets.

These are hi tech instruments that provide images and information at the micro, nano, and picometer scales. This allows customers to study a wide range of biological and inorganic materials with great precision. Including cells, molecules and metals for example.

Within incredible and installed base build over the years FEI has established an exceptional service in software business that represents approximately 30% of its' total revenues, creating a high margin recurring revenue stream. From a geographic perspective FEI has a global presence and the very balanced revenue profile. Approximately 40% of its sales are generate in Asia-Pacific and rest of world. So clearly a strong focus on capturing opportunities in these high growth regions similar to Thermo Fisher.

FEI is a strong and growing organization with approximately 3,000 colleagues globally. There are key locations in Europe and the US include R&D, promotional and manufacturing capabilities. In 2015 the business had annual revenues of $930 million and adjusted EBITDA margins of 23.4%.

Slide 6, to help you understand where the company fits in look at the left side and you'll our current segment breakdown. FEI will become part of the analytical instruments this is where our company's leading the mass spectrometry and chromatography businesses reside as well as our chemical analysis business. Not only as FEI's electron microscopy portfolio highly complementary to these technologies, but we'll also be able to leverage our total company global commercial reach to put FEIs products into the hands of more customers. As you know our unique customer value proposition is based on our ability to leverage our strengths across these complementary business, whether our customers are looking for reagents, lab supplies or analytical instruments our sales teams are in customers laboratories around the world everyday.

This is a key competitive advantage that will benefit FEI once as part of Thermo Fisher making the natural owner of this strategic assets.

Turning to Slide 7, FEI is a great strategic fit with our company who will make our unique customer value proposition even stronger. With our combined capabilities in protein analysis Thermo Fisher will be in the best position to serve the growing structural biology market. Our expanding offer in material sciences will increase our presence in these attractive markets where growth is driven by the adoption of nanotechnologies. Thermo Fisher's unmatched global scale and commercial reach will create new opportunities for FEI to expand his customer base, especially by leveraging our leadership in life sciences.

Beside from a leading product portfolio, FEI brings strong service business that will contribute to our growing services capability. All of this is a great example of how we continue to strengthened our unique customer value proposition. It's a key element of our growth strategy that allows us to drive share gain with our customers and there is well as expand to additional customer sets ultimately creating shareholder value.

On Slide 8, let's cover bit more detail on FEI Technologies and how they serve customers working in life sciences and material sciences. First as the clear leader in electron microscopy, FEI has made significant advances that are position this technology increasingly for life science applications particularly structural biology. They understood that there was an unmet customer needs which is the ability to actually visualize a molecular structure. They are breakthrough Cryo-EM system for example, is a disruptive technology that being used for high resolution analysis of proteins.

Based on our interactions with academic and biopharma customers, we are very excited about the opportunity to accelerate the adoption of these products in life sciences markets.

FEI also has unique imaging capabilities for material science applications. Tools such as there 3D nano-characterization and non-prototyping technologies are serving the growing trend towards innovative devices that are smaller and more complex to manufacture. The semiconductor industry is a good example of how FEI has distinguish himself by supporting both the lab development of these devices as well as the critical QA/QC application during production. Let me spend the couple of minutes on Slide 9, discussing how we think about the new opportunities this combination creates. Simply this is a story of high-end, high-tech capabilities that are highly complementary.

You know, of our exceptional track record in developing the Orbitrap mass spectrometry technologies used for protein identification and characterization. The addition of FEI's Cryo-EM system for structural analysis of proteins will put us in the best position to capitalize on the growth and structural biology.

Another very important benefit here is that with our unmatched presence in life sciences we will be able to accelerate the adoption of FEI's microscopy products within our customer base especially in the biopharma end markets. In materials science you are familiar with our broad molecular spectroscopy and elemental analysis portfolios. With FEI's scanning and transmission electron microscopes, we significantly increased our depth of capabilities in material science. Growth in this market is driven by the increase use of polymers, new engineered materials and smaller and more complex devices such as semiconductors. These trends are driving growth in the field of nano-technologies served by FEI.

So just a couple of examples of the great fit that will strengthen our strategic position, expand our opportunities to continue to gain share in life sciences and significantly expand our offering into attractive material science markets. The acquisition of FEI is also compelling from a financial perspective.

I'll now turn it over to Stephen Williamson, our CFO to run through these details with you. Stephen?

{C:Stephen Williamson:Senior Vice President and Chief Financial Officer:} So thanks Marc. I am also very excited about the transaction. So happy to review some of the financial aspects with all of you. Turning to Slide 10, as you saw in our press release this morning, we are paying $107.50 per FEI share for an expected total net cash consideration of $4.2 billion.

This amount is net of approximately $400 million of FEI's net cash assume to be available to us at close. The transaction delivers attractive financial returns. It will be immediately accretive to adjusted earnings per share and we expect it to deliver $0.30 of accretion in the first full year.

We also expect the adjusted ROIC to exceed our weighted average custom capital hurdle rates of 8.5% by year five. We expect to generate a total of $80 million of adjusted operating income synergies by year three following the close. Comprise to $55 million of cost synergies and $25 million from revenue related synergies.

Cost synergies will come from the eliminating redundant public company costs, leveraging our combined global infrastructure and deploying our PPI business system. As I am sure you're aware, we have a proven track record of efficiently and effectively integrating businesses. In terms of revenue synergies, we expect to accelerate the growth trajectory of FEI's life sciences business and we also expect to drive benefit from the unparallel commercial rich of Thermo Fisher Scientific.

And finally in terms of tax, as we have done in the past, we expect to benefit from leveraging our combined global structure and anticipate materially lowering FEI tax rates. We expect that we can reduce that tax rate roughly in half to about 10%. So all in all the financial profile here is very strong.

Moving to slide 11, let me review some an important transaction detail. In terms of financing we have a fully committed bridge in place to support our all cash offer. Permanent financing will be put in place near at the close date and we expect that to be a combination of our available cash plus the issuance of new debt. In terms of leverage, if we don't undertake any further capital deployment in 2016, we expect to proforma leverage ratio of about 3.6 time total debt to combined adjusted EBITDA at the closing date.

And given the strength of our cash flow we would be back down to a target leverage ratio within 12 month of close. We discussed the purposed permanent financing structure with the ratings agencies and we've fully expect to retain our investment grade rating.

Given the fragmented nature of our industry and our long-term capital deployment strategy we will continue to actively evaluate future M&A opportunities. In terms of next steps FEI shareholders will need to approve the transaction allow to need to obtain customary regulatory approvals and we expect to close the deal by early 2017.

The closing with the last slide, we take this transaction is a great fit for the two companies. It's financially compelling and will create significant value for all our key stakeholders. At our recent analyst meeting we highlighted our capital deployment strategy and this deal is a great example of that strategy at work. This is a deal that strengthens our strategic position of the company, enhances our customer offering and create significant shareholders value.

With that I'll turn it back over to Ken.

{C:Kenneth Apicerno:} Thanks, Stephen. Operator we are now ready to open it up for questions.

{Question & Answer}

{Operator:} At this time I would like to remind everyone if you'd like to ask a question please press star then the number one on your telephone keypad. Your first question comes from the line of Derik De Bruin of Bank of America Merrill Lynch.

{A:Derik De Bruin:Bank of America Merrill Lynch:} Thanks for taking the call. So quick question on the fact that FEI's business is a little bit more cyclical than you guys are doing there. I guess how do you think about the dealing -- and I guess sort of can you talk about that sort of play a factor in terms of valuation and like that I am just usually it's a little bit of a different move than what should normally done.

{C:Marc N. Casper:} So Derik thanks for the question. We actually look at the results of FEI over the last few years the organic growth rate is actually been very stable. Obviously there are parts of the business that have some cyclical nature but the business in aggregate actually is been growing steadily organically.

So as I think about adding this business to our company it really is very in line with the capital deployment strategy we've had, very complementary acquisition in terms of capability and when you look at where that business is moving within natural owner of it.

{A:Derik De Bruin:} And I guess I may have miss this, but did you say where you thought you can potentially get the operating margin for the business longer term?

{C:Marc N. Casper:} So today the operating margins are in the low 20's. And over time our plan is to get it in the mid to high 20s as you fully realize the synergies on the business continues to grow.

{A:Derik De Bruin:} Great. I'll get back in the queue. Thanks.

{C:Marc N. Casper:} Thank you, Derik.

{Operator:} Your next question comes from the line of Tycho Peterson of JPMorgan.

{A:Tycho Peterson: JPMorgan:} Thanks for taking the question. I guess first one I am just wondering if you talk little bit more about the process whether the competitive process and hitting over people bring up the fact that to 14% premium can you may be just talk a little bit Don may be if I directed to you is to why you're going to selling now given some of the data points have been improving.

{C:Marc N. Casper:} So let me start take the two businesses from our process standpoint, we've know each other for many years. We have great respect for FEI Don and I have known each other’s for many years on the personal note as well. And this was the right time and in terms of the process itself obviously there will be a proxy there filed and more details will come out, but we think it’s' an attractive acquisition for the shareholder of Thermo Fisher Scientific and attractive acquisition from the shareholders of FEI.

{A:Tycho Peterson:} And on that close, it's an early '17 close. I had a few people asked why you wouldn't be able to close it this year, are you expecting more anti cyst review. I am just wondering why you know, you able to be close next year?

{C:Marc N. Casper:} The FEI team has done a phenomenal job of reaching the global market place and because of that there are quite a number of regulatory filings, while there is really very limited to no overlap directly from any trust perspective, we have a significant number of filings and including likely that we will need to file in China or that we still reviewing that and enhance the longer time frame in terms of when we expect to close.

{A:Tycho Peterson:} And then just one last one. FEI is beginning to get more traction in pharma with their Cryo-EM business. Can you maybe talk Thermo perspective as to whether you think you can maybe accelerate the adoption of the technology and pharma given no your good touch with that customer base?

{C:Marc N. Casper:} I think the FEI team has done a really nice job of driving momentum. If you look at the number of publications, written around the Cryo-EM, it's really tracking even more rapidly then what we saw with Orbitrap. The one thing that will be the next phase of growth is really going from the life science academic research moving into aggressively into the biopharma market and given our north of $5 billion of revenue and huge relationships there, we'll be able to help open some doors clearly from an FEI perspective. So really is a very exciting market.

The feedback in the customer base is really, really tremendous about what this technology is opening up in terms of new science.

{A:Tycho Peterson:} Okay Thank you.

{C:Marc N. Casper:} Thanks Tycho.

{Operator:} Your next question comes from the line of Ross Muken, Evercore ISI.

{A:Ross Muken:Evercore ISI:} Hi, good morning guys. So maybe going back to sort of explain, obviously a slightly more cyclical ad that you have at least in size done much in the instrument market from an M&A standpoint for last few years versus sort of going back to the core and beating up analytical. As we think about synergy realization whether it's on the cost or may be probably more so on the revenue side. How does the deal like this differ versus sort of some of the recent transactions you have done in terms of realization, there is less obviously in the channel play here and then how do you think about confidence level in the returns and we were getting certainly to your point Stephen something north of the 8.5 area, it seems pretty competitive.

How should we put that in context?

{C:Stephen Williamson:} Yes, so a couple of thoughts; one is when we think about strategic set of acquisitions, we leverage our strength, so with the last day instrument deal was Dionex and that has been a huge home run and we have done a little bit of things to run in the way subsequent to that but Dionex was the last day one or few years ago and this is a natural acquisition there.

So we are always looking to leverage our strengths and take advantage of the scale and depth of capabilities. In aggregate FEI is not particularly cyclical. So, as I said earlier, not a concern there. From the synergy perspective, very strong revenue synergies to start.

When we look at that the ability to help accelerate penetration and life sciences that's an obvious one. The combined offering in the material science is also very obvious. When you think about the reach that we have for on molecular spectroscopy elemental analysis and when you think about adding scanning electron microscopy to that, that's another great said. Because of our strength in China that's another opportunity in terms of the call pattern there, so the revenue synergies are going to be very high.

On the cost synergies let Stephen dive into that a little bit but here it's very straight forward and how we will achieve the $55 million of cost.

{C:Stephen Williamson:} Yes. I think about the profile of this acquisition we don't have a direct business overlaps so the cost synergies as a percent of the total cost is smaller than couple of the previous deals like Affymetrix. But we do think we can leverage you can take out the public company cost duplication and but we do think we can leverage our global scale and then deploy our PPI business system to help drive more efficiency and effectiveness within FEI. One of the particularly interesting areas for us is the facility, the manufacturing facility that FEI has in the Czech Republic.

So low cost manufacturing side but really world class capabilities and world class talent availability. So I see it is very similar to the -- site that we have that we required through --that grew up for the company in terms of expanding capabilities of manufacturing reagents consumables from diagnostics products as well as R&D see that being very similar here and this ability in the Czech Republic from an instrument standpoint and leveraging the capabilities that FEI bring us from that standpoint for other areas within our analytical instruments business.

{A:Ross Muken:} That's helpful. Maybe Marc just to put a final point on I think the biggest question I have got from investors as just how to think about growth on the semi portion of the EM business specifically and obviously then that was sort of give us the sense of where you think we are in sort of that cycle I think that's the point that everyone is frankly debating.

{C:Marc N. Casper:} Yes. I think the better growth prospects are ahead right now in terms of where we are in this cycle and in terms of the some of the smart moves that FEI is needed to add capabilities we think the business is well positioned to have good growth serving the semiconductor markets. So I think that we feel good about the one thing here we have to say less about so far in the call is the growth prospects when we look at the combination here, this business should grow a little faster than our company average right in terms of what we believe the outlook is here.

So that's will be accretive to our organic growth overtime. So that's a nice aspect of the deal.

{A:Ross Muken:} Great. Thank you.

{C:Marc N. Casper:} Thanks, Ross.

{Operator:} Your next question comes from the line of Isaac Ro of Goldman Sachs.

{A:Joel Kaufman:Goldman Sachs:} Thank's it's actually Joel in for Isaac today. It sounds like the opportunities to use FEIC existing cost structure to reduce may be FX volatility across the entire Thermo portfolio?

{C:Marc N. Casper:} Yes. Thanks for that question. It's an interesting aspect of this deal as you may know Thermo Fisher we have compared to the company average in euros we have more revenue than we have cost compared to the rest of the company so we have pull through about 35% on our euro P&L.

FEIC has the opposite. Particularly when you take into consideration the Czech Republic manufacturing sites the Czech koruna roughly attracts to the euro as well so it's a very similar to the euro. When you compare FEI to us they have actually more customer they have revenue in euros for the two together and our combined euro Czech koruna P&L is basically round the company average from a margin standpoint so will be less impacted by changes in the euro overall.

{A:Joel Kaufman:} Thanks and just as a follow up I am appreciate the comments on your ability to reduce FEI's tax rate, but can you may be discuss how this deal would actually impact sort of the core Thermo tax rate going forward?

{C:Marc N. Casper:} Yes. It's basically it's inline with what I outlined at the analyst meeting last week. This is one of the factors that will enable us to maintain the tax rate down basically up to about 15% in 2019.

So as how I presented it at the Analyst Meeting and this is one of the factors that we'll be able to maintain the tax rate at such a low rate.

{A:Joel Kaufman:} Thanks.

{Operator:} Your next question comes from the line of Jack Meehan of Barclays.

{A:Jack Meehan:Barclays:} Hi. Thanks. Good morning. I wanted to understand that, could you may be give a little bit more color on the underlying growth rates for FEI Co. and where how you think they relates to the framework you laid out for Thermo Fisher last week at the Analyst Day.

{C:Marc N. Casper:} Yes I mean looking forward we would expect that the business would grow in the 5% to 7% range. In terms of organic growth and which is which we believe is quiet achievable. So it should be little bit accretive to the organic growth rate that we talk for the company being 4% to 6%. So we are excited about the combination here.

{A:Jack Meehan:}Got it. And then one more just on the leverage post the deal I think mentioned going up to 3.6 on a proforma basis, just may be the flexibility from here I know the business model assumes no further deployment from here. But if a nice tuck-in comes up which you're appetite to do further transactions from here? Thank you

{C:Marc N. Casper:} So Jack, thanks. First our first and primary focus is to successfully close and execute successful transaction with FEI and deliver a lot of shareholder value. So that's our first focus.

And as Stephen mentioned little bit earlier, given the financial strength of the company and given our strategy, we'll continue to look at M&A and if the opportunities and we have the capacity if something comes up that make sense then you'll see us continue to actively valuate the transactions but our focus is you know it's been a really in start to the year we've deployed almost $7 billion are committed $7 billion in capital which mean FEI, FEI metric share buybacks in dividends. So we're going to make sure we do a great job with the two that we bought and we will keep an eye for other things as well.

{Operator:} Your next question comes from the line of Jon Groberg, UBS.

{A:Jon Groberg:UBS:} Marc can you on the growth side of the FEI can you just and on the revenue synergy, can you just clarify, you think this year FEI should grow -- I am sorry that one year after the close will can accelerate its growth or that kind of year three once you really get into some of the new combined product and capabilities and synergies?

{C:Marc N. Casper:} So Jon, two different things; one is the average growth we expect over the next several years is 5% to 7% and the second thing is as a remainder the organic growth doesn't get into the calculation you know, in the first year. So really will be let's call it 2018 is when actually mathematically effect, the organic growth calculation of the company. But nonetheless we look at the backlog, the pipeline and we would expect good growth certainly post close for this business.

{A:Jon Groberg:} Okay. And then Marc as you mentioned that you have been pretty aggressive at the beginning of the year. Do you see anything specific in the market, making want to be more aggressive and are you know potential increase in rates I don't know what you think on the debt what from a debt standpoint. But there is anything on the beginning specific that you are seeing that you really makes you want to be more aggressive here?

{C:Marc N. Casper:} You know, we've always been active right and we're just seeing is we de levered after life technologies, we far exceeded the objectives that we have said out at the beginning of the transaction the company is performing very well. And as things have come up we've looked at many things, but we've been very selective we've only done the two transactions and we were super excited about it and right so. So we look at a lot but at the end of the day when the right one is there and the right strengthening the company and that our customers will understand benefit from it and ultimately it creates shareholder value as we execute.

So it's been a active pipeline but nonetheless we able to get two of them over the finish line.

{A:Jon Groberg:} Okay. Thanks.

{C:Marc N. Casper:} Thanks, Jon.

{Operator:} Your next question comes from the line of Doug Schenkel of Cowen.

{A:Doug Schenkel:Cowen & Co.:} Good morning guys. My first question is really just how we think about the impact of FEI on the long term gross rate. I guess it's a little bit of a follow up on Jon's question. So if we look at FEI's growth rate over the last several years, it's been fairly volatile.

They've done a great job it's still a business which sales into cyclical end market and it has at the high mix of capital sales and even the consumables part is less true consumables its more services if you look at it closely. You don't seen real concerned about the risk associated with this profile in terms of its potential impact on your longer term growth rate and quarter-to-quarter volatility. Is this the function of something that you guys are going to bring to the table that FEI wasn't doing historically or is just more of a function of the size of this business in the context of the bigger Thermo business?

{C:Marc N. Casper:} So Dough, a few things, one is if you look at over the last few years hoping to side a quarter-to-quarter volatility we just see in our capital equipment businesses. Actually the business is growing at pretty much the same rate for three years in a row, right different segments of growing at different rates within it but the business has been very-very stable. So it's not been cyclical at the company level.

So that's an important point and part of that is because the such great adoption of the life sciences products which will accelerate even further. In terms of what we will bring to FEI obviously our PPI business is going to help with cycle primes and that will help a little bit from a manufacturing perspective and smoothing, but when we look at the scale of the business relative to Thermo Fisher it's relatively small so even in the period of more volatility it really doesn't move the needle very much in terms of the effect on the company. So it's one that we thought a lot about and we feel very comfortable with.

{A:Doug Schenkel:} Okay and that's helpful Marc. As you've described what you' re excited about here I mean I think we've heard more about your excitement in terms of what you can do with FEI in the life science markets. There are components of FEI's core that don't seem frankly court to where Thermo has been strongest historically. I am just wondering if you're willing to share anything in terms of whether or not there might be some sequent divestitures contemplated as it means of essentially managing where you have exposure and which product lines you are adding here?

{C:Marc N. Casper:} Sure. So it's a great question. So I going to stop a thinking about our mass spect business for a moment everybody on the call thinks about mass spect and they think about it in the high end research market, but one of the reasons we make so much money there and we have had such good growth as we serve a number of applied markets environmental through safety, pure academic research even some industrial applications.

Core technology platform leverage across many end markets. When you think about FEI they've done a great job of a core technology, they have gone from material sciences, to semiconductor, to life sciences. So the things you divest because it effectively the same underlying technology in different application.

So we are excited about the technology, we are excited about where the business is in its evolution, but it's not one that you cut up in the pieces, it's a great business with 3,000 fantastic employees, that will join the company. So that's how we think about it.

{A:Doug Schenkel:} Okay. And one last one may be thinking about this merger the other way. Is there an opportunity for Thermo to may be drive more consumables through the FEI channels, I recognize the channels are become into the other here. But again, recognizing that the majority of the current revenues for FEI has historically been software and services.

Is there an opportunity for you to essentially funnel more core Thermo products through the FEI channel?

{C:Marc N. Casper:} We're certainly be based on our life sciences business is obviously will certainly being involve this sample throughout and that's part of the things that go on. We also believe in some of the real strong areas, where FEI has very great strength for certain customers certainly an opportunity to pull through additional products from Thermo Fisher not just instruments but obviously other products that are more recurring in nature. So overtime we expect because of the strength of the customer base you'll see us cross over in a effective way.

{A:Doug Schenkel:} Okay. Thank you very much.

{C:Marc N. Casper:} Thanks Doug.

{Operator:} Your next question comes from the line of Eric Criscuolo of Mizuho.

{A:Eric Criscuolo:Mizuho:} Hey, good morning. So I guess for Don, I was just wondering if you could may be dive into your customer base a little more and may be talk about some more specific, how the revenue comes from your life science customers versus martial science, customers versus oil and gas and versus semiconductor, just on a little more granular basis?

{C:Don R. Kania:} Sure, okay let's start with life sciences been obviously a very interesting topic in this call. Primarily academic customers right now for us, so we searches around the globe that academic institutions mostly universities, medicals, certain other integrated structural biology and other example.

So that's where the growth has been happening right now we've made out reaches to the pharmaceutical industry and have established a consolation in the U.K. to help accelerate that adoption. But as we look at the coming together with Thermo Fisher, I think what we are seeing there is their relationships and their already sales channel into those existing sales channels into those customers I think can really accelerate the growth of that part of the business, as well as I think help us also with the academic side of the business. So that's life sciences.

If we go to material sciences, sort of a 75, 25 academic customers base plus and industrial base where our product is sold into be research part of say a Dow chemical company or somebody like that. What's really exciting for us here is we have been traditionally strong on the academic side and then been trying to pursue further into the industrial side. Again I think Thermo Fisher brings great reach for us which we lack at this point in time, so another opportunity to grow and existing strong business.

Let's go to semi, semi you know it does had a lot of questions about cyclicality, it's mostly a laboratory base business. So it doesn't labs in the semiconductor companies. So the volatility is primarily significantly lower than you would expect from a pure play CapEx company providing volume manufacturing equipment. Yes there is some movements over the cycle but dramatically less cyclical than a pure play. and I think here is also other capabilities particularly integrated services things like that additional things that someone brings to the table.

Oil and gas business is small and as we commented in our calls we're really on hold until we get some stability in that market place and so I think together we will define the right strategy forward for that business when we complete all the regulatory milestones in between now and final closure. I hope that's very helpful.

{Operator:} Your next question comes from the line of Dan Arias of Citi.

{A:Daniel Arias:Citi:} Good morning, thank you. May be just one housekeeping question for Steven how are you thinking about the net interest expense for the year at this point I think it was 390 at the on the 1Q call just wondering how that changes at this point?

{C:Stephen Williamson:} Yes. So depending on the time of close we've may be pre-funding a piece of the debt required for the permanent financing. I don't see is being more than $0.02 of impact in 2016 at this point, but assumes we get line of site to that and the will give you more detail.

{A:Daniel Arias:} Okay and may be on the buyback outlook may be not necessarily this year because it sounds like those plans are pretty clear, but in the immediate terms do you anticipate being in the position to repurchase shares in the quarter as post to close?

{C:Marc N. Casper:} Our plan certainly is take it from two timeframe certainly our plans aren't to do anything right now in 2016 on repurchases. When you look at the long term model at Steven weighted out at our analyst meeting a week ago, we expected to deploy between 25% and 40% of available capital to share buybacks and dividends and we will continue to do that overtime and exactly when we'll get back in the market we'll figure out as the year unfold and instruct plan for 2017.

{A:Daniel Arias:} Got it. Okay may be just one last one for Don, Don I know you want to probably avoid specifics, but just broadly where do you feel like the company is now in terms of being in a new product introduction cycle would you say over the next 12, 24 months NPI is look more a like the last 12, 24 or is there acceleration there?

{C:Don R. Kania:} I think we're in the accelerating phase right now as we've talked with others we have stage that set a new product introductions in our industry that late summer timeframe is the common time for introduction. So when should expect some really exciting new products with some highly differentiated capability through to be released in that timeframe.

{A:Daniel Arias:} Got it. Okay, thank you.

{C:Kenneth Apicerno:} Operator we'll going to take one more question.

{Operator:} Your final question comes from the line of Tim Evans of Wells Fargo Securities.

{A:Tim Evans:Wells Fargo Securities:} Thank you. So, Marc what you will hearing from clients you can tell from the timing of the call today as I think our recognition at this deal seems to be a little bit of a departure from the types of businesses you've acquired over the past 5 years both in terms of the revenue mix in the different channels and in markets involved. I guess what we've like to understand this just how far outside the traditional life science markets in this focus you have pharma that you're willing to go in your M&A strategy now?

{C:Marc N. Casper:} Tim thanks for the question. So this one is right down the middle of the fair way in terms of the in serve markets. When you look at where the business serves the academic research market on the life science side and structural biology same customers mass spectrometry or high-tech reagents when you look at the material sciences customers you are going to find our molecular spectroscopy elements on analysis portfolio.

We do deals when the right time is there and 2012 was right time for Dionex and 2016 is the right time for FEI it's the fantastic transaction. We understand the business well the companies know each other well and really it is a very attractive transaction from a strategic strengthening the company, from our customers perspective and clearly from a shareholder value creation perspective really a perfect fit. So I want to thank everybody for joining us today on such short notice almost certainly before a long holiday weekend. We are excited at Thermo Fisher and we certainly look forward to working with Don and the rest of the FEI team to kick off the integration planning process and efficiently complete the transaction.

Thank you, and wishing everyone a wonderful weekend.

{Operator:} Thank you. That does conclude today's teleconference. You may now disconnect.