Thermo Fisher Scientific Inc said on Monday it would buy Patheon NV, a Dutch manufacturer of drugs for clinical trials, for $5.2 billion as it seeks to complement its offerings in production and services for the biopharma industry.
The offer price of $35 per share represents a premium of about 35 percent to Patheon's Friday close. Thermo will also assume $2 billion in net debt, putting the cost of the deal at about $7.2 billion for Patheon, which generated $1.9 billion in revenue last year.
Thermo Fisher, the world's largest maker of scientific instruments, also supplies raw materials used in formulating experimental drugs and had been doing business with Patheon.
Thermo Fisher Chief Executive Marc Casper, in a telephone interview, called the deal a "hand in glove fit to ... our fastest growing part of the business."
As drugmakers increasingly vie to shave costs from clinical trials, Patheon's drug manufacturing capabilities will help Thermo Fisher grab a bigger slice of the fragmented contract development and manufacturing market, which the company estimates to be about $40 billion.
Patheon has manufactured more products that won U.S. approval than any peer.
The deal, which is expected to be completed by year end, will add to Thermo Fisher's adjusted profit by 30 cents a share in the first full year after close.
"This deal could help solidify Thermo Fisher's multi-year core growth reacceleration," said Evercore ISI analyst Ross Muken, who called the forecast conservative and sees it adding 35-40 cents a share to earnings.
"We put out numbers that we feel incredibly high confidence in our ability to achieve," said Casper, adding that he will update the forecast once the deal closes.
The CEO sees greater growth potential longer-term.
"There are very interesting opportunities to build out their footprint in Asia-Pacific, where they have not yet really penetrated," Casper said.
Thermo Fisher has reached agreements with JLL Partners and Royal DSM to tender their holdings representing about 73 percent of Patheon shares. That puts the company well on the way to securing 80 percent required under Dutch tender rules.
Thermo Fisher said it expects to realize cost-saving synergies of about $120 million by year three following the deal's close as there is little direct overlap in the two companies.
There has been a wave of consolidation in the contract research space recently including INC Research Holdings Inc's agreement last week to merge with inVentiv Health Inc in a $4.6 billion deal.
Thermo Fisher shares were up 0.5 percent at $172.41 on Monday afternoon, while Patheon shares were up 33.2 percent at $34.64, just shy of the offer price.
Goldman Sachs & Co is acting as financial adviser to Thermo Fisher, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel.
Morgan Stanley & Co is Patheon's financial adviser, and Skadden, Arps, Slate, Meagher & Flom LLP is its legal counsel.