Thermo Fisher to Acquire One Lambda - Analyst Blog
July 17 2012 - 10:30AM
Zacks
Within one year of the Phadia
acquisition (for €2.47 billion), in August 2011, which strengthened
the company’s Specialty Diagnostics business, Thermo
Fisher Scientific (TMO) yet again announced another
strategic move to diversify its offerings. The company has decided
to acquire California based One Lambda, the global leader in the
filed of transplant diagnostics, for $925 million in cash.
The deal value is inclusive of the
cost of a three-year benefit program undertaken by One Lambda for
its key employees, amounts payable to some shareholders for
noncompetetion agreements and other contingent payments.
One Lambda
& Transplant Diagnostic
Founded in 1984, One Lambda’s
diagnostic tests are used by transplant centers for tissue typing.
This determines the compatibility of donors and recipients before
the transplant is done in addition to identification of antibodies
that can lead to transplant rejection.
As per the company, transplant
diagnostics is an attractive market, valued at $480 million in
2011, and growing in the mid- to high-single digits. The potential
for growth in this market is very high given the increasing global
demand for transplant procedures, increasing utilization (tests per
patient), and growing use of post-transplant antibody monitoring.
New evidence shows improved graft survival on continued antibody
monitoring.
One Lambda, with 320 employees,
recorded $182 million in revenues in 2011. With a wide customer
base (1,400), One Lambda derived 49% of its revenues from antibody
detection, 44% from human leukocyte antigen ("HLA") typing and the
rest from serology. Thermo Fisher expects to leverage its extensive
network in the emerging markets to drive uptake of One Lambda’s
portfolio of tests, which is currently marketed in the US (59%) and
Europe (21%).
Deal Funding &
Synergies
Thermo Fisher expects the
transaction to close in the fourth quarter of the current fiscal.
The deal is expected to be immediately accretive and add 9−11 cents
per share to the company’s adjusted earnings in 2013. It would also
generate greater tax efficiencies, and revenue and cost synergies
leading to an adjusted operating income benefit of about $15
million in 2015.
For now, the transaction will be
funded partly by the company’s existing cash balance and through
new debt financing. Thermo Fisher exited the first quarter of 2012
with $788.3 million in cash and cash equivalents compared with
$1,016.3 million at the end of fiscal 2011. The company’s
outstanding debt at quarter end was $6.7 billion.
Moody’s
Downgrades
Besides the acquisition, the
company announced an additional $500 million of stock repurchase
authorization, through December 2012. As of June 30, 2012, the
company had $250 million remaining under its existing share
repurchase authorization, which expires on November 9, 2012.
Although the debt burden will increase with the proposed
acquisition, we believe that the company will be able to deal with
it given its steady top-line growth and strong cash flow.
Rating agency, Moody’s, has however
downgraded the senior unsecured rating and all rated senior
unsecured notes of Thermo Fisher Scientific by one-notch to Baa1
from A3 with a stable rating outlook. Moody's expects the company
to incur an incremental $1.3 billion of debt to fund the
acquisition and repurchase shares. The agency expressed its concern
over the company’s strategy of funding acquisitions through
financial leverage and rewarding shareholders through share
buybacks and dividends.
Diagnostics Deals at
Large
The year 2012 has witnessed several
major deals in the diagnostics space. Agilent Technologies
Inc. (A) recently completed its acquisition of a Danish
cancer diagnostics company, Dako, for $2.2 billion (on a debt-free
basis). In addition, Hologic (HOLX), a prominent
player in the field of women’s health, is in the process of
acquiring Gen-Probe (GPRO). The deal is expected
to close next month. This will entrench Hologic’s presence in the
molecular diagnostics space.
We currently have a Neutral
recommendation on Thermo Fisher. The stock retains a Zacks #3 Rank
(Hold) in the short term.
AGILENT TECH (A): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
THERMO FISHER (TMO): Free Stock Analysis Report
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