Thermo Fisher to Acquire Dionex - Analyst Blog

Thermo Fisher (TMO) has decided to acquire California based Dionex Corporation (DNEX), a leading manufacturer and marketer of chromatography systems for $118.50 per share or total consideration of $2.1 billion. The offer price is at 21% premium over the closing price of Dionex as on December 10.

This acquisition is expected to result in $60 million of operating synergies in three years after the transaction is closed. Synergies are to be achieved through cost savings and higher revenues. The transaction, expected to be completed in the first quarter of 2011, would be accretive to Thermo Fisher's bottom line by 13-15 cents in the first year after closing.

The acquisition of Dionex not only strengthens Thermo Fisher's Analytical Technologies segment, but will also boost its presence in the Asia-Pacific region. The company will be able to target the attractive markets of environmental analysis, food safety and water testing. Dionex had introduced the first ion chromatography system for water analysis.

Dionex currently generates more than 35% of its revenues in Asia-Pacific and other emerging markets. This complements Thermo Fisher's existing strategy of expanding in emerging markets like China, India, and Brazil. Within the Asian market, the company is focusing on China, one of the fastest growing emerging markets, where Thermo Fisher sees robust growth with the expectation to generate more than $400 million in annual revenues in 2010.

The company views this region to be of immense potential based on a number of factors. China is investing heavily in multiple forms of energy production and over the next 10 years, the country plans to build more than half of the world's new capacity, mostly in the form of nuclear power.

Thermo Fisher has stepped up investments to build its presence in China, the result being China Technology Center in Shanghai. The company's focus on China and India is evident from the robust growth in revenues derived from these areas during the third quarter of fiscal 2010.

Bookings were stronger than revenues in the Asia-Pacific region, particularly in China and India, where double-digit growth was recorded. Based on strong booking momentum, the company expects the Asian market to be the fastest growing geography going ahead.

A strong cash balance enables Thermo Fisher to target suitable acquisitions. The company exited the third quarter of 2010 with $930.2 million in cash and cash equivalents, 40.5% down from $1.56 billion at the end of December 2009 and $1.3 billion at the end of the second quarter of 2010. The acquisition of Fermentas and share buyback program were the primary reasons behind the decline in cash balance.

A strong cash balance augurs well for suitable acquisitions and it has been noted that the acquisitions made over the past 12 months have been performing better than the company average. Consequently, acquisitions are considered to be significant contributors to growth and profitability going forward.

We are currently Neutral on the stock.

 
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