TMO Deal Opens Up Asia - Analyst Blog

Thermo Fisher Scientific (TMO) has managed to get clearance for its proposed acquisition of Dionex Corporation (DNEX) while passing smoothly through the scanning of HSR Act. The company is in the process of receiving other clearances and expects to complete the acquisition in the first quarter of fiscal 2011.

Earlier, in December 2010, Thermo Fisher decided to acquire California based Dionex, a leading manufacturer and marketer of chromatography systems for $118.50 per share or total consideration of $2.1 billion. This acquisition promises $60 million of operating synergies in three years after the close of the transaction and would be accretive to the company'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, as it is a haven for growth with heavy investments in multiple forms of energy production.

To execute its strategy Thermo Fisher has stepped up investments in China and created a 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 going forward.

We are currently Neutral on the stock.

 
DIONEX CORP (DNEX): Free Stock Analysis Report
 
THERMO FISHER (TMO): Free Stock Analysis Report
 
Zacks Investment Research