Thermo Electron, Fisher To Do “Reverse Merger”

“Thermo Fisher Scientific Inc.” will be new name for the post-merger company

CEO SUMMARY: Bigger is expected to be better as Fischer Scientific International, Inc. and Thermo Electron Corporation come together by year’s end and form a $9 billion behemoth in the laboratory supply industry. With 350,000 customers in 150 countries, it is likely that just about every laboratory and pathology group practice in the United States will see changes related to this merger.

IT’S THE BIGGEST CONSOLIDATION ever to occur among laboratory suppliers. Fisher Scientific International, Inc., with annual revenues of $5.7 billion, will merge with Thermo Electron Corporation, which has revenues of $2.7 billion.

It is a merger that has ramifications for most clinical laboratories and research labs around the world. That’s because most laboratories buy a wide variety of products from both Thermo Electron and Fisher Scientific. As the two companies streamline their product offering and integrate their sales and service staffs, laboratories will see changes that are a direct result of this merger.

It is a merger of equals, with both companies issuing a statement that their boards had “unanimously approved a definitive agreement to combine the two companies in a tax-free, stock-for-stock exchange.” However, the twist is that Thermo Electro, the smaller company, will be acquiring all the stock of Fisher Scientific.

The merger will be accomplished as a “reverse merger.” Fisher Scientific shareholders will receive two shares of Thermo Electron for each Fisher Scientific share they own. When completed, Fisher Scientific’s shareholders will own about 60% of the outstanding stock in Thermo Electron. Prior to the merger, the market value of Fisher
Scientific was about 50% greater than the market value of Thermo Electron.

Headquarters In Waltham

The merged entity will be known as “Thermo Fisher Scientific Inc.” and will have its headquarters in Waltham, Massachusetts, current home to Thermo Electron. Fisher Scientific is based in Hampton, New Hampshire. Subject to regulatory and other approvals, the merger is expected to be completed before the end of the year.

Chairman will be Paul M. Meister, who is currently Vice Chairman of the Board at Fisher Scientific. Marijn E. Dekkers will be the President and CEO of the combined company, the same position he held at Thermo Electron. Fisher’s current Chairman and CEO, Paul M. Montrone, will step down after the merger and provide consulting services to the company.

Wall Street analysts consider the merger to be a positive development. Both companies sell different products to many of the same customers. These products are equipment and consumables used by clinical laboratories and scientific labs. Combined, the two companies have 350,000 customers in 150 countries.

Vendor Consolidation

The consolidation strategy was explained by John Sullivan, a financial analyst with Leerink Swann & Co., based in Boston, Massachusetts. “The best deals in this industry are the ones where you are left with the ability to sell more products to your existing customers,” he observed. “It allows companies to sell to their customers more efficiently. Laboratories that are customers are trying to become more efficient too. They want to do business with bigger companies and concentrate their business with a smaller number of vendors.”

Another analyst concurred. “If you were to use the kitchen analogy, Thermo would be supplying the appliances and Fisher would be the supermarket,” declared Quintin Lai, Senior Life Science Research Analyst with Robert W. Baird & Co. “Right now, in the life sciences tool space, we don’t have any company that has this all under one roof.”

Similar Deals To Come

Sullivan believes that more consolidation lies ahead. “The land grab in life science tools is officially under way,” he noted, predicting that more deals would occur in this sector.

Most lab managers and pathologists are familiar with both companies. Thermo Electron makes equipment that is used extensively in chemistry and medical research, ranging from mass spectrometers to autopsy tables. It has a sizeable business in industrial tools, with customers in the oil, geology, and power industries.

Fisher Scientific is well-known in the clinical laboratory profession. Its 2,600-page catalog is a fixture in almost every laboratory and it sells an amazing variety of products. However, many lab managers who buy from Fisher do not realize the company was founded more than 100 years ago, in 1902. It has sold chemicals to Thomas Alva Edison, provided products to the Manhattan Project during World War II, and was a supplier to Jonas Salk, M.D. as he developed his vaccine for polio.

Alert lab administrators and pathologists will recall that Fisher Scientific had just completed another acquisition of its own. News of Fisher Scientific’s sale to Thermo Electron comes just 58 days after Fisher announced it would pay $283 million to acquire Athena Diagnostics, Inc., a lab testing company that offers proprietary assays in neurology and other clinical areas. That deal had only closed weeks before announcement of the impending merger of Fisher Scientific and Thermo Electron.

Visible Changes In 2007

During 2007, lab managers and pathologists will begin to see changes directly linked to this merger. As Thermo Fisher Scientific, the combined firm will need to integrate its product lines, its regional sales teams, and its customer service capabilities.

It should also be remembered that a consolidation of two large vendors like this tends to trigger other mergers and acquisitions among competitors. Everyone needs the size and scale to compete more effectively. So the coming months are likely to bring more consolidation.

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