Mega merger: Thermo, Fisher to combine

WALTHAM, Mass.—In what management at both companies are calling an "industry-transforming transaction", Thermo Electron Corp. and Fisher Scientific International agreed in early May to merge in a stock transaction valued at more than $10.6 billion. When completed, the new Thermo Fisher Scientific Inc. will become the dominant provider of life science products and services, one that is projected to rack up more than $9 billion in revenue in 2007.

"This combination brings together two well-respected industry leaders in the life laboratory and health sciences marketplace to create a company that has the product breadth, global reach and operational expertise to drive significant value for shareholders, customers and employees," said Marijn E. Dekkers, president and CEO of Thermo, who will hold the same titles with the new company. "We are reaching into high growth markets and geographies around the world and will have unparalleled access to customers with world class technologies and we will do something to truly advance an integrated laboratory solution."

Technically, the transaction is a Thermo acquisition of Fisher, even though Fisher's revenues of $5.6 billion are more than double Thermo's $2.6 billion in sales. Under the terms of the deal, Fisher shareholders will receive two shares of the new company stock for every share of Thermo Electron—which translates to $78.90 per share of Fisher stock. Fisher shareholders will end up owning 61 percent of the new company with Thermo shareholders owning 39 percent.

The reason for the merger, Dekkers said in the company conference call announcing the deal, is the desire of customers to buy everything from large capital equipment and laboratory services to software, consumables and reagents from a single source.

That's a big bet in a industry that has traditionally been highly fragmented and one that remains so. And while some industry insiders expressed skepticism that there were real synergies to be found merging two companies with very little overlap in their product offerings, analysts were generally positive about the merger.

"This deal marks a turning point for researches because they can essentially go to one company for all their research purposes," says Jessica Shah, industry manager, drug discovery technologies and clinical diagnostics of market research firm Frost & Sullivan. "There are definite synergies that will come from the integration of two life science sales forces. You'll have a combination of technical expertise coming from Thermo's instrumentation and can combine that with Fisher making their products more compatible and providing packaged solutions."

Thermo and Fisher executive estimated that it will achieve roughly $200 million of savings from a combination of logistical, sourcing and cross-selling synergies within the first three years.

A deal of this size is also bound to send shock waves through the industry as the other major instrumentation and consumables providers take stock of what they'll need to do to compete with the new company.

"I would say that many of the other instrument companies will need to look at this and may be looking to go in the same direction," says John Witonsky, research analyst, drug discovery technologies with Frost and Sullivan. "I think that this may only be the beginning of further consolidation in what's a fragmented industry and that acquisition activity in this area may increase."

Not that the move to provide instrumentation and consumables from one company is a particularly brand new idea. For the past couple of years, industry competitor Applied Biosystems has been making a concerted push to broaden its consumables offerings to better balance it sales. Most recently, it acquired Austin, Texas-based RNA reagents and kit supplier Ambion for $273 million in cash (see February 2006 issue of DDN).

But researchers shouldn't expect all companies to follow suit. In an interview with online business news outlet marketwatch.com a couple weeks after Thermo-Fisher announcement, Waters CEO Douglas Berthiaume said his company would stay on its proven path of focusing on its core technologies. "One of the reasons we have been able to be successful over the years is that we have a large set of customers that value our liquid chromatography [systems] and continue to ask us for more," Berthiaume says in that interview.