Cowen analyst Doug Schenkel lowered his rating of the company late last week from “Outperform” to “Neutral”, saying that the sale price will not fetch too much more than the company’s current share price, which was hovering around $64 per share on Friday.
“Our analysis suggests that [Agilent Technologies], [Beckton, Dickinson and Co.], [Danaher], and [Thermo Fisher Scientific] are unlikely to go materially higher than $65-70,” Schenkel writes. “While Roche arguably is less financially constrained, we question the logic. It is possible spinning off [Life Tech’s genome sequencer] Ion Torrent could garner a higher total price, but this is more complex than it might seem.”
If a purchaser does not pay more than $70 per share, Carlsbad, California-based Life Tech will not be sold for more than about $14.7B.
But of all of these potential buyers, Cowen says that only Roche “could potentially complete a deal at current levels with cash and equivalents on hand; however, we recognize that given other financial obligations, Roche would still likely seek external financing in a cash-only deal.”
Roche also may have the upper hand in negotiations as Ronald Andrews, president of medical sciences at Life Tech, and some of his support staff have previously worked at Roche.
Bids for the company are due in early April, according to anonymous sources cited by Reuters. Life Tech’s shares have appreciated about 33% in 2013, and about 18% since the company acknowledged hiring two investment banks as part of an annual strategic review.
Other Possible Bidders
Despite Roche’s advantage, Massachusetts-based Thermo Fisher “remains arguably the most likely suitor,” Cowen notes, suggesting that it would be unlikely that it would pay more than “a price that is in the mid-to-high $60s.”
Analysts quoted by Reuters also noted a good fit between the laboratory equipment and scientific instrument businesses of Thermo Fisher and Life Tech.
Late Friday, Bloomberg also reported that the odds are growing that either Thermo Fisher or Washington-based Danaher could buy Life, according to anonymous sources.
But despite Danaher making “the most sense financially,” the company’s financial discipline might not allow it to get into a bidding war over Life, Cowen adds.
And Agilent’s purchase of cancer diagnostic tool provider Dako in May 2012 for $2.2B means Cowen does “not believe that Agilent is likely to pursue another large transformational deal.”
In addition, KKR & Co. and TPG Capital, which were part of separate buyout groups pursuing Life, are no longer planning to bid for the biotech company, according to Bloomberg.
Ion Torrent Spinoff
The acquisition of Life Tech is also being positioned as a transaction that could see Ion Torrent sold separately from the rest of Life Tech, Cowen adds.
But Cowen seems sceptical of why a company would want to purchase Life Tech without Ion. “Ion Torrent was responsible for almost all the revenue growth generated by Life Technologies in 2011 and 2012, and is expected to do the same in 2013,” Cowen says. “Put differently, Life Technologies does not appear to be a growth asset without Ion Torrent.”