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Jun 12, 2008

Invitrogen Ponies Up $6.7B for Applied Biosystems

  • Invitrogen reports that it is willing to pay $6.7 billion for Applera’s Applied Biosystems through a cash and stock transaction. This combination will create a formidable supplier of reagents and systems, expected to generate approximately $3.5 billion in combined sales.

    Applera-Applied Biosystems shareholders will receive $38 for each share of the company’s stock that they own in the form of Invitrogen common stock and cash. This represents slightly more than a 17% premium on its closing price yesterday. The firm’s value rose from $32.44 at the end of trading yesterday to open today at $34.80. Invitrogen’s share price, on the other hand, opened trading 10% lower, but is slowly climbing in early morning trading.

    “This is certainly good news at least in the near term for Applied Biosystems,” comments John Sullivan, director of research, Leerink Swann. Applied Biosystem shareholders have benefited in the recent past from good share price even in a lousy market and they will continue to benefit from this deal, he notes.

    “In order for Invitrogen shareholders to benefit, the company is going to have to deliver on the cost-cutting targets that they have reported,” Sullivan adds. Invitrogen expects that the merger should generate a run rate of approximately $125 million in cost savings by the third year. This sounds reasonable, according to Sullivan, but he cautions that the current management team at Invitrogen hasn’t had the best success in integrating acquired assets.

    The transaction, which is expected to close in fall, is also expected to bring about a run rate of at least $50 million in annual operating income by the third year. Sullivan says that this may be tougher to realize than the cost-cutting goal. “While there are obvious ways to achieve the cost-cutting target, it is more difficult to understand how the revenue-synergy target will be achieved.”

    Sullivan anticipates that an important area that will help the combined company save money will be in the purchasing of raw materials as well as equipment and services to run the firm. Also, they will get rid off redundant resources including staff, especially in the sales and support department, since the two companies have similar products and thus similarly focused sales teams. Finally, Sullivan identifies consolidation of manufacturing facilities as another way the entity will look to shave costs.

    “The question is,” according to Kevin Hrusovsky, chief executive and president of Caliper Life Sciences, “how much cost synergy they really will achieve.” This will be key to the merged company’s customers realizing the true benefit of one-stop shopping, he comments.

    “I view the merger of Invitrogen and Applied Biosystems as productive for a majority component of the industry,” says Hrusovsky. The combination of Invitrogen’s consumables with Applied Biosystems’ systems covers about 70% of what the industry needs, according to Hrusovsky.

    Removing bottlenecks in sample prep and allowing 24/7 operations through automation is where companies like Caliper, with lab chip technology and liquid-handling tools, will be able to collaborate and provide services as companies like Invitrogen and Applied Biosystems integrate.

    Financial details of the transaction includes an expected split between cash and stock of 45% and 55%, respectively. Applera-Applied Biosystems shareholders have the option to request all cash or all stock, subject to possible proration.

    Applera-Applied Biosystems shareholders will receive a value of $38 a share if the 20-day volume-weighted average price of Invitrogen common stock is in the $43.69–$46.00 range three business days prior to the close of the transaction. The total value per share will differ if Invitrogen’s 20



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