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May 15, 2006
Volume 84, Number 20
p. 9

Thermo And Fisher Agree To Merge

New company will be leading supplier of lab products and services

Celia Arnaud

Thermo Electron and Fisher Scientific have agreed to combine into a new company, Thermo Fisher Scientific, that they say will be the leading provider of laboratory products and services in the life, laboratory, and health sciences industries.

The deal calls for Thermo, the smaller of the two firms, to acquire Fisher for $10.6 billion in stock and to assume $2.2 billion in net debt. The transaction is expected to close in the fourth quarter of this year.

The companies say their strengths complement each other's. Thermo has a strong position in laboratory equipment, instrumentation, and software, while Fisher is a leader in the reagents and consumables used in such equipment and in laboratory services.

"This is one of the most vertically integrated mergers we've seen in this industry," says Quintin J. Lai, a stock analyst at the investment firm Robert W. Baird. "What we're seeing is a formerly pure-play consumables company merging with a formerly pure-play instrument company."

The deal is being handled as a stock swap, with Fisher shareholders receiving two shares of Thermo common stock for each share of Fisher stock. As a result, Thermo shareholders will own about 39% of the company, and Fisher shareholders about 61%.

Marijn E. Dekkers, president and CEO of Thermo, will become president and CEO of the combined company, which will be headquartered in Waltham, Mass., where Thermo is now based. Paul M. Meister, vice chairman of the board of Fisher, will become the chairman of the new company. The board of the new company will have eight members, five nominated by Thermo and three by Fisher. Paul M. Montrone, current chairman and CEO of Fisher, will step aside after the merger is complete, but he will remain as an adviser to the company.

Thermo Fisher is expected to have more than $9 billion in revenues next year and cash flow upward of $1 billion. The combined company will have 30,000 employees, including a global sales force of 7,500 people. The companies anticipate $200 million in "synergies," including $150 million in cost savings and $50 million in revenue opportunities from cross-selling and enhanced geographic reach.

The combined company will have a strong focus on the Asian market, Dekkers said in a conference call with stock analysts. Both companies already have manufacturing facilities there, and the combined company will have more than 800 employees in China alone. "Who knows what Asia will look like five to 10 years from now?" Dekkers said. "What I do know is that we have the best possible position in the industry and we can build from that."

The new firm will build on the strong tradition of R&D at both companies. "I believe that we'll do more R&D on the overlap between hardware and consumables than we have in the past," Dekkers said. "There will be tremendous opportunity for us to develop workflows that don't exist today. I'm determined to start spending money in that area because if you don't, you'll never figure out how to do this better."

Lai is taking a wait-and-see attitude to the long-term implications of the merger on competitors such as Invitrogen, Sigma-Aldrich, Waters, and PerkinElmer. "If this combined, vertically integrated company is successful in winning more than its current share of contracts from large customers," Lai says, "then the question will be: Will the other players have to get bigger to compete in the new market? I think 2007 will be an interesting year, and we'll have to see how this unfolds."

Chemical & Engineering News
ISSN 0009-2347
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