By Bill Berkrot and Susan Kelly
NEW YORK (Reuters) - Thermo Fisher Scientific Inc on Monday agreed to buy Life Technologies Corp for $13.6 billion in a deal that would make it one of the top two companies in the hot field of genetic testing.
The pact values Life Tech at $76 per share, a 12 percent premium, and is one of the year's biggest corporate takeovers.
It would catapult Thermo, the world's largest maker of scientific and laboratory equipment, to the forefront of the fledgling field of personalized medicine, where research is uncovering the hereditary underpinnings of diseases to better tailor treatments to patients.
"Genetic sequencing is an area that will become increasingly important over the years in terms of specialty diagnostics, and Thermo needs to compete in that market because they have a number of products in that area that ultimately could get displaced by sequencing applications," said Macquarie Capital analyst Jonathan Groberg.
Thermo Chief Executive Marc Casper said advanced genetic testing was an important field going forward, and his company wanted to get into it as an industry leader. Life Tech is considered No. 2 behind Illumina Inc in the race to produce faster and less expensive gene sequencing technology.
"We didn't want to be a more distant participant, and this transaction facilitated us having a stronger position there," Casper said in a telephone interview.
Illumina last year rebuffed a $6.8 billion hostile takeover bid by Swiss drugmaker Roche Holding AG. Shares of Illumina, which will now have to compete with a far larger rival with much greater resources, were down nearly 3 percent.
Interest in buying Illumina could heat up again, given the company's unique position in advanced gene sequencing.
"They've only got one target they can think about," Mizuho Securities analyst Peter Lawson said of potential buyers. "There's a lot of experimental technologies out there, but if you need something that functional, you need either Illumina or Life Tech's Ion Torrent business."
Both companies have dramatically cut down the time and cost of sequencing human DNA, a major boon to researchers and drugmakers developing gene-based diagnostic tests and treatments. Life Tech's Ion Proton System can complete the sequencing process, which recently took several days, in a couple of hours for about $500. The technology has more than 1,000 times the sequencing capacity of Life Tech's original sequencing chip.
AN IMMEDIATE PROFIT BOOST
Thermo said the deal would add 90 cents to $1 to its per-share profit in the first full year, initially sending its shares higher. After jumping nearly 6 percent, the shares gave back those gains and were down almost 1 percent at $78.98 in late afternoon trade on the New York Stock Exchange. Life Tech shares were up 7.4 percent at $73.05, below the offer price.
Analysts estimate the combined company's 2013 revenue at about $17 billion. The acquisition will also enhance Thermo's offerings in the fast growing field of food safety, and its ability to grow in China and other emerging markets.
"The combined company has significant scale in emerging markets and scale makes a huge difference there," said Casper, adding that the deal "will put us in even better position to grow in the fastest growing regions in the world."
The acquisition is by far the biggest deal for Thermo since the company was created in the $12.8 billion merger of Thermo Electron and Fisher Scientific International in 2006. It is also far larger than the biggest previous deal on Casper's watch - the $3.5 billion acquisition of Phadia in 2011.
Thermo expects the transaction to close early in 2014, pending U.S. regulatory and shareholder approvals.
Thermo will assume Life Tech's net debt of about $2.2 billion. In the third year following the deal's closing, Thermo said it expects to achieve cost savings of $250 million by consolidating facilities and support functions.
Thermo's products range from basic scientific instruments to advanced mass spectrometry equipment used to determine the chemical structure of molecules. It also sells chemicals, agents and antibodies used in the manufacture and research of biotech medicine - a line that will be complemented by Life Tech's product lines - and in recent years has increased its portfolio of products for testing air and water quality and food safety.
LIFE TECH EXPLORED MANY OPTIONS
Life Tech explored a sale after previous attempts by Chief Executive Gregory Lucier to boost the value of the company's stock and capture more market share from Illumina.
Lucier said the company explored many options during a lengthy strategic review, with the ultimate sale of the company always one of them. "We are very satisfied both with the process and the outcome," he said in a telephone interview.
Lucier oversaw the merger of his former company Invitrogen and Applied Biosystems that created Life Tech.
Life Tech President and Chief Operating Officer Mark Stevenson is expected to play a significant role in the combined company, the companies said.
Thermo has obtained committed bridge financing from JPMorgan and Barclays, which also acted as the company's financial advisers.
Sources familiar with the deal told Reuters that Life Tech chose Thermo over Sigma-Aldrich Corp, a maker of chemicals for research laboratories, and a private equity consortium consisting of Blackstone Group, Carlyle Group, KKR & Co and Temasek Holdings.
Deutsche Bank Securities and Moelis & Co advised Life Tech.
Wachtell, Lipton, Rosen and Katz and WilmerHale are legal counsel to Thermo Fisher; Cravath, Swaine and Moore is legal counsel to Life Tech.
(Additional reporting by Esha Dey in Bangalore; Editing by Michele Gershberg)