On May 27, 2016 Thermo Fisher Scientific Inc. (NYSE:TMO), the world leader in serving science, and FEI Company (NASDAQ:FEIC), the leader in high-performance electron microscopy, reported that their boards of directors have unanimously approved Thermo Fisher’s acquisition of FEI for $107.50 per share in cash. The transaction represents a purchase price of approximately $4.2 billion (Press release, Thermo Fisher Scientific, MAY 27, 2016, View Source [SID:1234512844]).
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FEI designs, manufactures and supports high-performance electron microscopy workflows that provide images and information at micro-, nano- and picometer scales. Through its industry-leading offering, FEI enables customers across life sciences and materials science markets to make breakthrough discoveries and increase productivity. Based in Hillsboro, Oregon, FEI has more than 3,000 employees worldwide and maintains R&D, sales and manufacturing operations primarily in Europe and the U.S. The business, which had 2015 revenues of $930 million, will become part of Thermo Fisher’s Analytical Instruments Segment.
"The addition of FEI’s leading electron microscopy platform is an outstanding strategic fit with our company and will create significant value for our customers and our shareholders," said Marc N. Casper, president and chief executive officer of Thermo Fisher Scientific. "In life sciences, there is growing adoption of electron microscopy to study the structure of proteins. The technologies we gain with FEI will complement our mass spectrometry leadership, putting Thermo Fisher in the best position to capitalize on this important trend. As the unrivaled leader in life sciences, we will also be able to leverage our global scale and commercial reach to extend the use of FEI’s products within our large biopharma customer base. Finally, the transaction will be immediately accretive to our earnings and will create value for our shareholders through cost and revenue synergies."
Don Kania, president and chief executive officer of FEI, said, "We are pleased to reach this agreement with Thermo Fisher, which offers a number of important benefits to FEI shareholders, customers and employees. Our shareholders will see substantial and immediate value through the terms of this transaction. Our customers will benefit from the shared commitment Thermo Fisher and FEI have to innovation and customer service. And our employees will see new opportunities as our development and market expansion plans accelerate by being part of Thermo Fisher, a large and growing company. Fundamentally, this transaction bolsters our already strong position in the marketplace and allows us to play an increasing role in enabling our customers to accelerate breakthrough discoveries, increase productivity and provide solutions to global challenges."
Casper concluded, "We are very excited to welcome our new colleagues from FEI to the Thermo Fisher team and look forward to realizing the significant benefits of the transaction for all our key stakeholders. FEI’s commitment to R&D, strong IP foundation, and excellent services and software offerings are a great fit with our Analytical Instruments business and will create exciting new opportunities to drive growth."
Benefits of the Transaction
Leading Electron Microscopy Platform Complements Mass Spectrometry Leadership to Accelerate Advancements in Structural Biology. FEI’s high-end electron microscopes (EM) are complementary to Thermo Fisher’s mass spectrometry systems used for protein identification and characterization. FEI’s Cryo-EM technology, for example, is a disruptive technique used increasingly for the analysis of proteins in structural biology. With its global scale and commercial reach, Thermo Fisher also has the opportunity to drive the adoption of FEI’s technologies among its life sciences customers, particularly in biopharma.
Creates New Opportunities to Expand Presence in Attractive Materials Science Market. FEI brings unique imaging technologies that improve quality and productivity, and expand Thermo Fisher’s capabilities in materials science. Its 3D nano-characterization and nano-prototyping technologies, for example, are critical tools that support the growing trend toward development of devices that are increasingly smaller and more complex to manufacture. Thermo Fisher will benefit from FEI’s strong presence in the semiconductor market, creating a new growth opportunity within this customer set.
Proprietary, Global Services Business Generates High-Margin, Recurring Revenue Stream. FEI brings an industry-leading services business supported by more than 800 employees in over 20 countries, enabling customers to achieve maximum productivity from their instruments. The services business drives high-margin, recurring revenues that represent approximately 25% of total FEI sales, and will contribute to Thermo Fisher’s growing services capabilities.
Delivers Attractive Financial Benefits. The transaction is expected to be accretive to Thermo Fisher’s adjusted EPS1 by $0.30 in the first full year after close. Thermo Fisher expects to realize total synergies of approximately $80 million by year three following the close, consisting of approximately $55 million of cost synergies and approximately $25 million of adjusted operating income1 benefit from revenue-related synergies.
Approvals and Close
The transaction, which is expected to be completed by early 2017, is subject to the approval of FEI shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals. Thermo Fisher intends to use proceeds from committed debt financing and cash on hand to fund the transaction.
Advisors
JP Morgan is acting as financial advisor to Thermo Fisher, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel. Goldman, Sachs & Co. is acting as financial advisor to FEI, and Wilson Sonsini Goodrich & Rosati is serving as legal counsel.
Use of Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, including adjusted EPS and adjusted operating income, which exclude certain acquisition-related costs, including charges for the sale of inventories revalued at the date of acquisition and significant transaction costs; restructuring and other costs/income; and amortization of acquisition-related intangible assets. Adjusted EPS also excludes certain other gains and losses that are either isolated or cannot be expected to occur again with any regularity or predictability, tax provisions/benefits related to the previous items, benefits from tax credit carryforwards, the impact of significant tax audits or events and the results of discontinued operations. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods. We believe that the use of non-GAAP measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the company’s performance, especially when comparing such results to previous periods or forecasts.