The Waltham, Mass., company said Monday morning it has agreed to spend $76 in cash for each share of Life Technologies, which is based in Carlsbad, Calif. Shares of both companies then started climbing before markets opened and continued to rise into the afternoon.
Life Technologies offers more than 50,000 products and delves into genetic analysis and engineering, stem cell therapies and chemicals used in forensics and food safety. Its next-generation DNA sequencing, currently used in research labs, is designed to sequence a person's entire genome in one day for $1,000, which is faster and cheaper than previous forms of analysis.
DNA sequencing helps analyze a person's genetic predisposition for diseases like cancer and can potentially help doctors better understand how a disease will grow and spread, allowing them to focus on more effective treatments. Thermo Fisher CEO Marc N. Casper said they expect that technology to be a key driver of long-term growth.
"Over time, the expectation is there will be more and more clinical applications for that technology, meaning that doctors can then use the information to make determinations on disease state and what course of action they should take," he said.
Morningstar analyst Charlie Miller said DNA sequencing already is used in areas like oncology and prenatal diagnostic testing, and he expects "significant adoption" of the Life Technologies sequencing over the next five years.
The analyst wrote in a research note he considers that next-generation sequencing business to be "the best in the industry," and he said it will fill a major gap in Thermo Fisher's product portfolio.
"Life's core business has been stagnant for a while, so the hope is Thermo Fisher, being a better operator, will reinvigorate this unit," Miller wrote.
Life Technologies was formed in November 2008 through the combination of Invitrogen Corp. and Applied Biosystems Inc. It earned about $430.9 million, or $2.40 per share, last year on $3.8 billion in revenue.
Thermo Fisher expects the acquisition to add between 90 cents and $1 to its adjusted earnings per share in the first full year after it closes.
Analysts say the deal will give Thermo Fisher much more than DNA sequencing. They note that 85 per cent of Life Technologies revenue is recurring, which will provide a steady source of cash.
Wallachbeth Capital analyst Difei Yang said the combined company also will have more leverage to negotiate better deals from suppliers, and the businesses complement each other.
The companies expect the deal to close early next year. The $13.6 billion price does not include $2.2 billion in debt that will be assumed as part of the deal.
Life Technologies shareholders and regulators still need to approve the acquisition, but the boards of both companies have already backed it. Thermo Fisher has obtained financing commitments for the deal from JP Morgan and Barclays.
Shares of Life Technologies have shot up more than 38 per cent so far this year and set several record highs by the end of last week. Much of that climb started after the company said Jan. 18 that it had retained Deutsche Bank Securities and Moelis & Co. to help conduct a strategic review of its business, but it had not decided on a course of action.
Its shares then climbed again last month after The Wall Street Journal reported that investment manager KKR & Co. was thinking about pairing up with other private equity firms to pursue Life Technologies. The report, citing anonymous sources, also named Thermo Fisher as a possible bidder.
Following the announcement, credit rating agencies Moody's Investors Service and Fitch Ratings put Thermo Fisher on review for downgrade because the deal would significantly add to Thermo Fisher's debt.
Life Technologies shares jumped 7.5 per cent, or $5.12, to $73.12 Monday afternoon, while Thermo Fisher climbed 62 cents to $80.21. Meanwhile, broader trading indexes fell more than 1 per cent, and shares of KKR dropped about 2.7 per cent, or 52 cents, to $19.03.