By Bill Berkrot and Susan Kelly
(Reuters) - Thermo Fisher Scientific Inc <TMO.N> on Monday agreed to buy Life Technologies Corp <LIFE.O> for $13.6 billion (8.8 billion pounds) in a deal that would make it one of the top companies in the hot field of genetic testing.
The pact values Life Tech at $76 per share, a 12 percent premium, and is one of the year's biggest corporate takeovers.
The deal would catapult Thermo, the world's largest maker of scientific and laboratory equipment, to the forefront of the fledgling field of personalized medicine, in which research is uncovering the hereditary underpinnings of diseases to better tailor treatments to patients.
"Genetic sequencing is an area that will become increasingly important over the years in terms of specialty diagnostics, and Thermo needs to compete in that market because they have a number of products in that area that ultimately could get displaced by sequencing applications," said Macquarie Capital analyst Jonathan Groberg.
Thermo Chief Executive Marc Casper said advanced genetic testing was an important field going forward, and his company wanted to get into it as an industry leader.
"We didn't want to be a more distant participant, and this transaction facilitated us having a stronger position there. Today there are two industry leaders, Life Technologies being one of them," Casper said in a telephone interview.
On a call with analysts, Casper acknowledged that Life Tech is No. 2 behind Illumina Inc <ILMN.O> on next-generation gene sequencing, but he said Life Tech has been gaining market share and has a promising pipeline of products in development.
Illumina last year turned down a $6.8 billion hostile takeover offer from Swiss drugmaker Roche Holding AG <ROG.VX> that demonstrated the appeal of gene-sequencing technology.
SHARES OF BOTH COMPANIES RISE
While the agreed price for Life Tech was at the high end of analysts' expectations, and large acquisitions typically drive down the share price of the acquirer, Thermo said the deal would add 90 cents to $1 to its per-share profit in the first full year, sending its shares higher. After jumping nearly 6 percent, the shares were up 1.1 percent at $80.45 in afternoon trade on the New York Stock Exchange.
The offer represents a premium of about 12 percent to Life Tech's market close on Friday. Life Tech shares were up 7.5 percent at $73.11, below the offer price.
The combined company would have 2013 revenue of about $17 billion, according to analysts' estimates. The acquisition will also enhance Thermo's offerings in the fast growing field of food safety, and its ability to grow in China and other emerging markets.
"The combined company has significant scale in emerging markets and scale makes a huge difference there," said Casper, adding that the combination of the two companies "will put us in even better position to grow in the fastest growing regions in the world."
The acquisition is by far the biggest deal for Thermo since the company was created in the $12.8 billion merger of Thermo Electron and Fisher Scientific International in 2006. It is also far larger than the biggest previous deal on Casper's watch - the $3.5 billion acquisition of Phadia in 2011.
"We obviously had a good track record and a strong methodology to successfully integrate businesses," Casper said. "We feel comfortable in our ability to execute this successfully."
Thermo expects the transaction to close early in 2014, pending U.S. regulatory and shareholder approvals.
Thermo will assume Life Tech's net debt of about $2.2 billion. In the third year following the deal's closing, Thermo said it expects to achieve cost savings of $250 million by consolidating facilities and support functions.
Thermo's products range from basic scientific instruments, such as test tubes, to advanced mass spectrometry equipment used to determine the chemical structure of molecules. It also sells chemicals, agents and antibodies used in the manufacture and research of biotech medicine - a line that will be complemented by Life Tech's product lines - and in recent years has increased its portfolio of products for testing air and water quality and food safety.
LIFE TECH EXPLORED MANY OPTIONS
Life Tech explored a sale after previous attempts by Chief Executive Gregory Lucier to boost the value of the company's stock and capture more market share from Illumina.
Lucier said the company explored many options during a lengthy strategic review, with the ultimate sale of the company always one of them. "We are very satisfied both with the process and the outcome," he said in a telephone interview.
Life Tech President and Chief Operating Officer Mark Stevenson is expected to play a significant role in the combined company, the companies said.
Lucier oversaw the merger of his former company Invitrogen and Applied Biosystems that created Life Tech.
"It's been an honour to work with a team of people that created a company that ultimately Thermo Fisher thought highly enough to pay over $13 billion for," Lucier said.
Thermo has obtained committed bridge financing from JPMorgan <JPM.N> and Barclays <BARC.L>, which also acted as the company's financial advisers.
Sources familiar with the deal told Reuters that Life Tech chose Thermo over Sigma-Aldrich Corp <SIAL.O>, a maker of chemicals for research laboratories, and a private equity consortium consisting of Blackstone Group <BX.N>, Carlyle Group <CG.O>, KKR & Co <KKR.N> and Temasek Holdings.
Deutsche Bank Securities <DBKGn.DE> and Moelis & Co advised Life Tech.
Wachtell, Lipton, Rosen and Katz and WilmerHale are legal counsel to Thermo Fisher; Cravath, Swaine and Moore is legal counsel to Life Tech.
(Additional reporting by Michele Gershberg in New York and Esha Dey in Bangalore; Editing by Maureen Bavdek, Lisa Von Ahn and John Wallace)