Thursday, Invitrogen Corp. (IVGN) said it agreed to acquire Applera Corp.'s Applied Biosystems Group (ABI) for $6.7 billion in a cash and stock deal that would create a global leader in biotechnology reagents and systems, generating approximately $3.5 billion in combined sales.
Applied Biosystems, which is a maker of drug-development instruments, is one of the two publicly traded units of Applera Corp., while the other unit, Celera Group (CRA), is Appelera's diagnostics and medical testing business.
Through this deal, Invitrogen and Applied Biosystems will be well positioned to compete in several rapidly growing markets, such as next generation sequencing, cell biology, applied markets and emerging geographies. Invitrogen's strength is considered to be in consumables content and chemistry core competencies, while Applied Biosystems' strength is in having systems expertise and strong presence in applied markets.
Further, the combined entity will have a major presence in key growth markets and exceptional technical capabilities in the areas of genetic analysis, proteomics, cell biology and cell systems. Both companies provide life sciences tools, which are used to analyze nucleic acids like DNA and RNA, small molecules, and proteins to make scientific discoveries and develop new pharmaceuticals.
Moreover, Applied Biosystems' products also serve the needs of some markets outside of life science research, referred as "applied markets," such as the fields of: human identity testing; biosecurity, which refers to developing products to counter threats like biological terrorism.
Commenting on the deal, Invitrogen CEO, Gregory Lucier, said, "This transaction combines the industry's premier consumables provider with the industry's premier systems provider to create a world-class biotechnology tools company. With this acquisition, we are nearly doubling our consumables business as almost half of Applied Biosystems's revenues are consumable in nature."
Mark Stevenson, President and Chief Operating Officer of Applied Biosystems, said, "Combining Applied Biosystems's and Invitrogen's capabilities will realize growth opportunities greater and faster than either company could achieve independently."
As per the terms of the merger deal, Applera-Applied Biosystems shareholders will get $38.00 per share in cash and stock and the expected split between cash and stock is 45% and 55%, respectively. The consideration represents a premium of 17% to Applied Biosystems' closing price on June 11, 2008, or 12% to Applied Biosystems' average closing price for the past 30 trading days.
Stockholders of Applera-Applied Biosystems will receive the $38.00 a share consideration, assuming the 20 day volume-weighted average price of Invitrogen common stock is in the range of $43.69 - $46.00 three business days before closing of the transaction. The per-share consideration will differ if Invitrogen's 20-day volume-weighted average price is above or below that range, measured shortly prior to the close of the transaction.
In addition, Applera-Applied Biosystems shareholders can choose their mode of payment in all cash or all stock, subject to possible proration.
The combination is expected to be neutral to slightly accretive to Invitrogen's earnings per share the first year after close and significantly accretive in year two. For the fiscal and calendar year 2009, on a post close basis, the combined company expects organic revenue growth to be in the mid single digits.
Lucier added, "We expect to realize the benefits of this transaction quickly and efficiently with an integration roadmap that will focus on creating maximum value for the combined company."
The combined entity is expected to generate over 70% of its revenue from consumables and services. In addition, Invitrogen and Applied Biosystems have highly recognizable brands in core structural and functional genomic product areas, cell biology, proteomics and other mass spectrometry-based applications, as well as foundational tools such as transfection reagents, antibodies, fluorescent technologies, and cell culture reagents. Furthermore, the company will have significant R&D resources and a sizable intellectual property estate of over 3,600 patents and licenses.
The combined company will have an industry-leading team of approximately 3,000 sales and service employees and serve customers in more than 100 countries worldwide. Apart from this, Applied Biosystems's businesses could benefit from utilizing Invitrogen's industry-leading e-commerce systems and its expansive network of onsite supply centers.
On the cost savings front, the transaction is expected to save about $125 million by the third year of the combination. These cost savings are expected to be realized through enhanced sourcing and logistics efficiencies; site rationalization to achieve production scale; research and development optimization; and overhead synergies.
In addition, the parties expect to achieve a run rate of at least $50 million in annual operating income from revenue synergies by the third year of the combination. The companies expect to achieve these revenue synergies through cross-selling and channel opportunities, penetration and access to new markets, and new joint products.
Apart from this, Invitrogen reaffirmed its full-year guidance. Previously, Invitrogen said it expects full-year revenues to increase in the high single digits and non-GAAP earnings per share to increase one and a half to two times that of revenue.
To finance the cash portion of the deal, Invitrogen will use cash on hand and proceeds from a fully underwritten debt financing from Bank of America, UBS Investment Bank and Morgan Stanley. The combined company expects to generate strong operating cash flow and rapidly pay down debt.
The transaction is targeted to close in the fall of 2008, subject to certain closing conditions, including completion of the previously announced separation of Applera's Celera group. In March, Applera, a developer of instrument-based systems, said its board had authorized management pursue a possible separation of the Celera Group from Applera.
Following the close of the acquisition, the combined organization will be named Applied Biosystems, Inc. and have its corporate headquarters in Carlsbad, California.
Upon closure of the deal, Invitrogen's chairman and chief executive officer, Gregory Lucier, will hold the same positions for the newly-combined company and Mark Stevenson, the current President and Chief Operating Officer of Applied Biosystems, will continue in the same positions in the combined company. Once the deal is closed, Invitrogen shareholders will hold a majority stake in the combined company.
Related to this deal, Moelis & Company and UBS Investment Bank acted as financial advisors, and DLA Piper US LLP acted as legal counsel to Invitrogen. Applera got the financial advise from Morgan Stanley, with Morgan Stanley and Greenhill & Co. providing fairness opinions to the Board and Skadden, Arps, Slate, Meagher & Flom LLP acting as legal counsel.
Founded in 1987, Invitrogen, a provider of life science technologies, is headquartered in Carlsbad, California and conducts business in more than 70 countries around the world. The company employs approximately 4,700 scientists and other professionals. For the recently concluded first quarter, net income totaled $59.7 million or $1.19 per share, up from $30.3 million or $0.62 per share in the prior year quarter. The company's revenues for the first quarter increased 13.5% to $350.2 million from $308.7 million in the same quarter last year.
Applied Biosystems, which serves the life science industry, is headquartered in Foster City, California, and reported sales of approximately $2.1 billion during fiscal 2007. For the recently concluded third quarter, the company's profit increased to $82.9 million, or $0.48 per share, from $75.5 million, or $0.39 per share, for the prior year quarter. Net revenues grew 4% to $552.6 million for the third quarter from $529.9 million a year-ago. For fiscal 2008, the company said it expects mid single digit growth in revenues, with non-GAAP earnings per share estimated to grow at a double-digit rate.
On the buyout news, Applied Biosystems' stock gained $2.89 or 8.91% and currently trading at $35.33. On the other hand, Invitrogen lost $2.90 or 6.69% and currently trading at $40.45.
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