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GEN News Highlights : Jul 27, 2009

Agilent to Snag Varian for $1.5B to Pad Analytical Offerings

Transaction has a 32% premium and is expected to help Agilent reach its 20% ROI target.

Agilent Technologies is willing to pay $1.5 billion in cash to take over Varian. The acquisition will broaden Agilent’s offerings in life sciences, environmental, as well as energy and materials. It also expands its product portfolio into atomic and molecular spectroscopy and establishes a stronghold in NMR, imaging, as well as vacuum technologies.

“The acquisition of Varian by Agilent gives Agilent an even bigger global franchise, scale, and market share in several key life science instrumentation categories,” remarks Isaac Ro and Jing Dai, life science tools (LST) and services equity research analysts at Leerink Swann. “In fiscal 2008, which ended October, Agilent reported $2.2 billion in LST-related revenues, principally in the areas of GC-MS, HPLC, and related instrumentation. Varian’s $828 million revenue base, estimated for fiscal 2009, in GC-MS, NMR, and vacuum technologies is a nice fit to Agilent's franchise in our opinion.”

Agilent will pay $52 cash per share. This is approximately 32.65% over Varian’s closing price on July 24. Varian stock climbed sharply to open trading today at $50.65.

The transaction is expected to generate $75 million in annual cost synergies and achieve Agilent’s 20% return on invested capital target within four to five years.

“While we continue to be a world leader in electronic measurement, our biggest opportunities for future growth are in bio-analytical measurement,” points out Bill Sullivan, Agilent’s president and CEO.

 “We also anticipate that the combination will yield strong benefits for our customers and employees,” comments Garry Rogerson, chairman and CEO of Varian. “We each bring expertise and experience across a different but complementary set of markets and applications. For instance, while Agilent is a leader in food safety, Varian is well established in the energy industry and has a broad spectrum of products for environmental analysis.”

Commenting on Agilent’s future, Leerink’s Ro and Dai say, “We think this transaction effectively removes Agilent from the LST M&A landscape, as the company previously had $1.4 billion in cash on hand at the end of second quarter of fiscal 2009. Given the cyclical challenges in the the other 60% of Agilent’s franchise (electronic measurement), we think Agilent is unlikely to make further acquisitions of size in life sscience tools in the near-term.”