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TMO-LIFE Deal Gains Regulatory Nod

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Thermo Fisher Scientific (TMO) announced that the impending $13.6 billion (or $76 per share) acquisition of Life Technologies Corp. (LIFE) has been approved by the European Commission. This piece of news adds another feather to Thermo Fisher’s cap with respect to the much-anticipated takeover.

However, the approval from EC is based on certain conditions including the divestment of TMO’s cell culture (sera and media), gene modulation and magnetic beads businesses. We note that collectively these businesses generated revenues of $225 million in 2012.

Besides this approval, Thermo Fisher also needs certain additional regulatory go-aheads, including a clearance from the U.S. Federal Trade Commission (FTC). The company is currently working on completing this transaction by early 2014.

In August, more than 98% of the shareholders of Life Technologies (representing more than 72% of the company’s outstanding shares) had voted in favor of this merger agreement. On Apr 15, Thermo Fisher disclosed that it will acquire LIFE for roughly $13.6 billion plus the assumption of the latter’s net debt ($2.2 billion as of year-end 2012).

The total price of the purchase of $13.6 billion includes cash and debt of $9.5–$10.0 billion and as much as $4.0 billion in equity. EC’s support in this regard is considered to be a major positive and a big step forward for the deal to finally go through.

From the financial perspective, the buyout is expected to be immediately accretive to Thermo Fisher’s adjusted earnings by 90 cents to $1.00 within the first full year of the takeover. Further, the acquisition is expected to create significant cost and revenue synergies for the company, with adjusted operating income synergies of $85 million in the first year.

From Life Technologies’ point of view, given its expansive line of consumables for genomic and molecular and cell biology, the acquisition by Thermo Fisher will effortlessly strengthen the combined company’s global foothold and commercial reach.

Apart from revenue and cost synergies, we expect Life Technologies’ products, as part of the larger Thermo Fisher group, to fit well with the growing trend of lab-spending over the long term. It should also create a kingpin in the research, specialty diagnostics and applied markets, thereby allowing the joint entity a competitive edge over other players in the market.

In addition, substantial expansion in the Asia-Pacific market, mainly China, is on the cards for the combined company. Given Life Technologies’ huge potential in the region and high growth rate in China, Thermo Fisher expects to exceed its goal of garnering 25% revenues from the Asia-Pacific region and emerging markets by 2016.

Currently, Life Technologies and Thermo Fisher both carry a Zacks Rank #3 (Hold). However, other medical stocks, such as, AngioDynamics Inc. (ANGO) and Boston Scientific (BSX) are worth considering. Both these stocks carry a Zacks Rank #2 (Buy).

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