--S&P, Moody's and Fitch downgrade Thermo Fisher one notch on One
Lambda acquisition, buyback plans
--Thermo Fisher to repurchase an additional $500 million of stock
--Thermo Fisher to pay $925 million for One Lambda
Thermo Fisher Scientific Inc. (TMO) agreed to buy transplant
diagnostics test provider One Lambda for $925 million in cash to boost
its existing immunosuppressant monitoring assays business.
Thermo Fisher, a supplier of analytical technologies and laboratory
products, said the purchase price includes the cost of a three-year
retention program established for key One Lambda employees, payments
payable to certain shareholders for noncompetition agreements and a
one-year earn-out provision based on the achievement of certain
financial targets.
The company said One Lambda generated 2011 revenue of $182 million and
will become part of Thermo Fisher's specialty diagnostics segment.
"The One Lambda team has pioneered market-leading tests that are
widely used across the transplant-testing workflow to improve patient
outcomes," Thermo Fisher Chief Executive Marc N. Casper said. "With
its strong technology platform, high margin profile and good growth
prospects, the business is perfectly aligned with our specialty in
vitro diagnostics strategy."
In response to the news, three credit ratings firms lowered their
investment-grade ratings on the company. Standard & Poor's Ratings
Services lowered its corporate credit rating to A-minus from A,
putting it four levels above junk territory.
"The downgrade reflects Thermo Fisher's lack of commitment to retire
debt, which we view as a shift in financial policy," said Standard &
Poor's credit analyst Rivka Gertzulin.
Separately, Moody's Investors Service downgraded the company's rating
to Baa1 from A3, leaving it three levels above junk. The firm said it
expects Thermo Fisher will raise $1.3 billion of debt to fund the
acquisition and share repurchases. Fitch Ratings lowered Thermo
Fisher's rating by one notch to triple-B-plus, three levels away from
junk territory, also noting the company's increased debt load as a
result of acquisitions over the past year and added pressure to its
balance sheet from its expanding share repurchase program.
The three firms said Thermo Fisher's outlook is stable.
Thermo Fisher expects to close the deal in the fourth quarter and
estimates it will add nine cents to 11 cents to 2013 adjusted earnings
per share.
Thermo Fisher also said it expects the deal to generate revenue and
cost synergies for a total adjusted operating income benefit of about
$15 million in 2015.
The company also unveiled plans to repurchase an additional $500
million of stock through Dec. 31. Thermo Fisher had $250 million
remaining under its existing share repurchase authorization which
expires Nov. 9.
Thermo Fisher, which in April reported its first-quarter earnings rose
10% on an increase in revenue from all segments, has seen strong sales
growth over recent quarters, aided by acquisitions and its expansion
into Asia-Pacific markets.
Last year, the company agreed to buy closely held allergy-testing
company Phadia AB for $3.5 billion, and in May it agreed to buy Doe &
Ingalls Management LLC for $175 million in cash. Doe & Ingalls
provides specialty-production chemicals and related services to the
biopharmaceutical and microelectronics industry.
Shares slipped 14 cents in regular session trading, closing at $51.90.
The stock is down 18% in the last 12 months.
-Nathalie Tadena contributed to this story.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
July 16, 2012 07:35 ET (11:35 GMT)
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