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Lightening its load
WALTHAM, Mass.—Striking a dual business strategy aimed at replenishing its cash base while opening new doors to long-term growth, Thermo Fisher Scientific Inc. is selling its Athena Diagnostics business to Quest Diagnostics for $740 million, and its Lancaster Laboratories operation to Belgium-based Eurofins Scientific for another $200 million. The company expects both transactions to be finalized during the second quarter, with the sale of the Lancaster Laboratories' contract-testing business subject to a post-closing adjustment.
The March announcement of the two divestitures comes just a couple of months after Thermo Fisher Scientific reported plans to buy chromatography systems firm Dionex for $2.1 billion in cash, a deal that is expected to complete during the first quarter of this year.
Marc N. Casper, president and CEO of Thermo Fisher Scientific, says Athena and Lancaster have "performed very well within our company, and we believe that these strategic buyers will offer them even greater opportunities for growth in the long term. The transactions position both businesses in companies that are closely aligned with the unique contract laboratory services they provide and will generate significant proceeds that we can re-deploy to create shareholder value."
Thermo Fisher Scientific's board also approved a $750 million stock buyback. The company reported that it has repurchased about $385 million under its existing buyback program that expires in September.
Reference laboratory Athena Diagnostics, based in Worcester, Mass., provides diagnostic testing for neurological and other diseases, with an emphasis on gene-based tests. The firm's expertise includes tests for Alzheimer disease, peripheral nerve and neurogenetic disorders, paraneoplastic syndromes, movement disorders, neuromuscular disorders and ataxia. Thermo Fisher Scientific says Athena achieved revenues of $110 million in 2010, and has approximately 300 employees.
Athena's prospective new parent, Madison, N.J.-based laboratory-testing services specialist Quest Diagnostics, will pay for its acquisition using cash on hand and existing credit facilities. Athena will bring expertise in neurology to complement its capabilities in testing for cancer, infectious diseases and cardiovascular disease.
"The acquisition of Athena will establish Quest Diagnostics as the clear leader in the rapidly emerging neurology testing market, which represents one of the next significant growth areas in diagnostic testing," says Wendy H. Bost, director of media relations for Quest Diagnostics. "Strategically, we believe Athena will be the principal beneficiary of accelerated demand for diagnostic testing as additional therapies are developed for neurological conditions. We are excited to add neurology testing as our fourth strategic platform, complementing our leadership in cancer, infectious disease and cardiovascular disease."
Athena "fits all of the key criteria we look for in an acquisition," Bost says. "It has a unique offering and is the leader in neurology testing, with the most comprehensive test menu—about 350 tests—in this market."
About 75 percent of its revenues are patent-protected, Bost says. In addition, the neurology diagnostics market is growing rapidly, with the potential to accelerate and expand with scientific discovery.
"We expect to further accelerate Athena's growth by supplementing its specialty sales force with Quest Diagnostics' extensive sales force to reach our broader customer base," Bost says. "Moreover, Athena has attractive margins and cash flow."
Athena will operate as an independent business within Quest Diagnostics out of its esoteric reference lab facility in Worcester, Mass. Quest Diagnostics plans to use it as a specialty lab for neurology testing.
Assuming a close of the transaction early in the second quarter, Athena is expected to add approximately 1 percent to Quest Diagnostics' 2011 revenue growth.
"Looking forward, we continue to be interested in acquisitions that will strengthen our position in high-growth areas," Bost adds.
Lancaster, Pa.-based Lancaster Laboratories is a contract-testing laboratory that provides comprehensive analytical services for pharmaceutical, biopharmaceutical and environmental sciences customers. The business had approximately $115 million in revenues in 2010, has approximately 1,100 employees at its operations in the United States and Ireland and is part of the company's biopharma services business.
Eurofins reported revenues of approximately $900 million in 2010 and has 8,000 employees located in 30 countries throughout Europe, the United States, Asia and South America. The company is an international group of laboratories providing testing and support services to governments and pharmaceutical, food, environmental and consumer businesses. The group makes about $900 million in annual revenues.
Sylvain Besson, spokesman for Eurofins Scientific Group, tells ddn, "I can't comment more than what has been said into our press release, but overall, we expect synergy effects between Lancaster Laboratories and the Eurofins network. We intend to develop cross-selling sales between European and American customers. "
Lancaster enables Eurofins to "first, significantly enlarge its North American footprint; secondly, strengthen its laboratory activities for the pharmaceutical and biopharmaceutical industries in North America, Europe and Asia; and thirdly, gain a strong position in the U.S. environmental testing market," Besson says.