Thermo turns up heat on Asia-Pacific expansion plans

WALTHAM, Mass.—The tail end of fall 2010 saw Thermo Fisher Scientific announce two important acquisitions, both of which factor significantly into the company's plans to increase its footprint in the Asia-Pacific region. The first acquisition announcement involved Lomb Scientific—a provider of laboratory chemicals, consumables and instruments in Australia and New Zealand—in late November for an undisclosed sum. The second was a much more attention-getting $2.1 billion acquisition of Sunnyvale, Calif.-based Dionex Corp., a manufacturer and marketer of chromatography systems, in mid-December.

"Both the Dionex and Lomb transactions are consistent with our strategy of investing to increase our footprint in Asian markets, such as China and India, as well as other strategic growth markets like Brazil," Marc N. Casper, president and CEO of Thermo Fisher Scientific, tells ddn. He notes that Thermo Fisher built its first factory in Shanghai around a decade ago and followed with a second factory and a demo lab in 2005—and now the company has four factories in China.

In addition, he notes that in 2008, Thermo introduced the first Fisher Scientific laboratory supply catalogue in Chinese, "and that has been a very successful move," Casper says. "Last year, we moved the headquarters of our Environmental Instruments business to China so we can more effectively serve three of the fastest-growing markets in Asia: air quality, water quality and radiation monitoring. This summer, we opened a new China Technology Center. Through the center, we will have the ability to tap into the large pool of Chinese engineers graduating from universities to work with us to design products in China, for China."

Looking to the specific acquisition deals in late 2010, Casper notes that Dionex currently generates approximately 35 percent of its revenues in the Asia-Pacific region and other emerging high-growth geographies, while the Lomb transaction significantly strengthens Thermo's laboratory product offerings in the region, particularly chemicals used in life sciences, research and industrial applications.

"We have invested in technology innovation, Asia expansion and complementary acquisitions—all to strengthen our growth opportunities in attractive end markets," Casper says of the advantages and rewards of the Asia push. "We are focused on these strategic investments because they create value for all our key stakeholders—customers, employees and shareholders."

The deal with Dionex in particular makes strategic sense, according to Jefferies & Co. analyst Jon Wood, because the two companies have few overlapping products, and Dionex does more business in China than does Thermo. Also, he says, Dionex has been experiencing faster growth than Thermo Fisher.

Although Zacks Investment Research remains neutral regarding the purchase of Thermo Fisher stock, the firm does note that a strong cash balance at Thermo "augurs well for suitable acquisitions and it has been noted that the acquisitions made over the past 12 months have been performing better than the company average. Consequently, acquisitions are considered to be significant contributors to growth and profitability going forward."

Under the terms of the agreement to acquire Dionex, Thermo Fisher will commence a tender offer to acquire all of the outstanding shares of Dionex common stock for $118.50 per share in cash. The consideration represents a 21 percent premium to Dionex's closing stock price on Dec. 10, 2010, the last trading day prior to the deal's announcement, and a 32 percent premium to Dionex's average closing stock price over the last 60 trading days.

Thermo Fisher expects to realize total operating synergies of $60 million in the third year following the transaction's close through a combination of cost savings and revenue enhancements. The transaction is expected to be immediately accretive to Thermo Fisher's adjusted earnings per share by $0.13 to $0.15 in the first 12 months following the close.

"We are pleased to be joining Thermo Fisher and are excited about the opportunities we will have as part of the world leader in serving science," said Frank Witney, president and CEO of Dionex, in the news release about the deal. "Thermo Fisher's commitment to innovation will fuel our ongoing technology development, and their global manufacturing and commercial presence will significantly strengthen our ability to deliver quality products and services to our customers around the world. This transaction offers immediate and significant value for our shareholders, as well as the opportunity for our customers and employees to benefit from combining two highly complementary organizations."

As for the Lomb deal, no specifics were released as to the price attached to the definitive agreement to acquire the company. Thermo did note in the news release about the deal that Lomb's customers include leading hospitals, universities, research and analytical laboratories in both Australia and New Zealand, as well as a growing portion of Asia and the Middle East. Lomb has approximately 100 employees and had full-year revenue of about $34.1 million in 2009.