Thermo Fisher Scientific Inc., of Waltham, Mass., has made a bold play in the molecular diagnostics market, including infectious disease testing, with its proposed $11.5 billion acquisition of Qiagen NV, of Venlo, Netherlands.
Word of the deal comes after reports late last year that named Thermo Fisher as a potential suitor for Qiagen. However, in late December, Qiagen said it had wrapped up a review of potential strategic alternatives and decided its standalone business plan represented the best opportunity for value creation.
Now, the boards of both companies have come to a deal they unanimously agreed to that is slated to give Qiagen €39 (US$43.37) per share in cash. That figure represents a premium of about 23% to the closing price of the company’s stock March 2, the last trading day prior to the transaction’s unveiling. The price includes the assumption of about $1.4 billion of net debt.
The transaction is expected to be completed in the first half of 2021, pending receipt of applicable regulatory approvals. Thermo Fisher has obtained committed bridge financing, and permanent funding is expected to come from cash on hand and the issuance of new debt. The transaction is not subject to any financing condition.
Looking at the deal, Peter Welford, of Jefferies, said that a rebuilding of confidence in Qiagen is in order. For example, the company reported Oct. 7, 2019, that long-serving CEO Peer Schatz would step down from the top spot and remain as special advisor to the supervisory board. Thierry Bernard, senior vice president and head of molecular diagnostics business area, has been serving as interim CEO ever since. Another issue Welford highlighted was a profit-warning, particularly as it related to China and the end of internal next-generation sequencing programs in favor of a deal with Illumina.
“Lingering uncertainties on China execution, roll-out of syndromic testing QIAstat-Dx, and mid-term growth drivers, likely leave shareholders amenable to a takeout, in our view,” he added. With that said, “[w]e have long viewed Qiagen's strong position in research labs, plus front-end prep for molecular diagnostics with the expanding QIAsymphony installed base, to be attractive to larger life science conglomerates.”
Welford also highlighted the previous speculation about a buyout and Qiagen’s ultimate decision to terminate the review. “Given this process, we believe the emergence of a counter bidder seems unlikely, in our view.”
Meanwhile, Morningstar’s Alex Morozov acknowledged that while the deal is not inexpensive, “the price differential is roughly equivalent to the value of the synergies, which we anticipate Thermo Fisher will deliver.”
Morozov noted that his organization long has noted that Thermo Fisher’s special diagnostics division has largely other performed vs. its other units. “Qiagen, with its significant molecular diagnostics portfolio targeting infectious diseases, fits Thermo Fisher's needs, although its growth, especially as of late, has been lackluster,” he added.
During a call on the new deal, Derik De Bruin, an analyst with Bank of America, asked about retaining personnel, particularly given the long close period. “So, the first thing is we have an incredibly disciplined playbook on how you integrate and how you bring the new colleagues on board and the importance of how everybody that's joining the company makes Thermo Fisher Scientific better,” Marc Casper, Thermo Fisher’s president and CEO replied. He highlighted previous acquisitions and key people who have stayed on board, adding that Bernard was staying, in addition to the vast majority of the Qiagen senior executive team. For its part, Qiagen employs about 5,100 people at 35 locations in more than 25 countries.
Steve Beuchaw, of Wolf Research, asked about what will happen with Qiagen’s external relationships. Casper highlighted his own company’s deal with Illumina, as well as one with Diasorin. He noted that Thermo Fisher has relationships with both, and it had just renewed one with Diasorin for the next decade.
Evercore ISI analyst Vijay Kumar asked during a call with Thermo Fisher executives what had changed over the past couple of months and whether there is a go-shop provision. Casper said terms of the deal will be released in a few days via the filing process. “And what you have here is a deal with a break fee in both directions, is the way to think about how the transaction is structured,” Casper added.
Qiagen’s Q4 results
Qiagen discussed its fourth-quarter results Feb. 5, and Bernard noted that the company exceeded the updated outlook that it set for the fourth-quarter sales growth and delivered on full-year sales growth. There was room for optimism, as the Americas and Europe, Middle East and Africa regions showed promise. However, the Asia-Pacific saw a decline, as CFO Roland Sackers discussed.
The company was hit by the discontinuation of the China Genereader joint venture. In addition, it had experienced issues when some of its distributors saw a slowdown in payments coming in from their customers. “During the fourth quarter of 2019, we put monitoring plans in place to address this issue. For the year, growth in the Asia Pacific/Japan region slowed to 2% CER, reaching $314 million and representing 21% of sales.”
Sackers noted that the company is expecting lower sales in China for the first half of the year. “While we are seeing an increase in global demand for solutions that can be used for the coronavirus testing, we have not included it in our outlook for 2020 given the uncertainties and disruption at this time to overall business trends in China,” Sackers added.
Despite the problems in China, William Blair’s Brian Weinstein noted the upside to revenue and earnings per share, as well as stronger-than-expected revenue in molecular diagnostics and efficient operating expense spending. He added that his organization had been eagerly anticipating the results, given the changes it had experienced.
“This dizzying activity, in addition to geographic headwinds that affected third-quarter results, prompted questions about the organization’s ability to ignore all the noise and focus on results,” Weinstein wrote. “To its credit, it appears it has been successful for now in its efforts, and we believe that is commendable.”