Corporate bidders have life in them yet. Thermo Fisher Scientific is paying $13.6 billion for genetic test equipment maker Life Technologies, edging out a group of private equity suitors.
After Dell and Heinz, the merger playing field now looks flatter.
Thermo Fisher’s offer of $76 for each Life Tech share trumped a bid of $65, or a bit more, from Blackstone, Carlyle, KKR and Singapore’s Temasek. The difference is about $2 billion in value. Thermo Fisher, which manufactures health care equipment, expects annual cost synergies of about $250 million. In present value terms after tax at a 20 percent rate - Thermo Fisher’s is typically lower - those savings are, coincidentally or not, worth about the same as the value gap between the two bids.
That’s as it ought to be: a corporate advantage over private equity when there’s a decent fit. It hasn’t always been obvious. In the $20 billion-plus bidding for Dell, for instance, buyout firms seem to have had the upper hand from the start over industry rivals approached by the PC maker’s advisers. And H.J. Heinz, which should make for a prime strategic target, sold for $28 billion in February to private equity firm 3G Capital and Warren Buffett’s Berkshire Hathaway.
Each deal is, of course, different and size can deter strategic bidders. But buyout firms awash in committed capital from investors and with access to wide-open debt markets and ultra-low interest rates will often be able to stretch further than recently cautious corporate counterparts. On the other hand needing to club together, as with Thermo Fisher, could curb private equity ambitions. And if companies are big enough and themselves willing to borrow to make acquisitions, that helps redress the balance.
Life Tech is collecting nearly 40 percent more for shareholders than its stock price on Jan. 17 before it revealed it was on the block. That implies pitting financial buyers against strategic ones paid off. Meanwhile, the year’s biggest “Merger Monday†was dominated by another so-called strategic deal â€" Dish Network’s bid for Sprint Nextel. The growing competition among buyers could make it a full-fledged seller’s market.
Richard Beales is assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
