Thermo Fisher Scientific plans to acquire Patheon for approximately $7.2 billion cash, the companies said today, in a deal that expands the buyer into the contract development and manufacturing organization (CDMO) market.
Thermo Fisher Scientific said Patheon’s CDMO services will complement its life sciences technologies designed to support research, clinical trials, and production, allowing it to be a stronger partner for pharmaceutical and biotech customers.
The buyer also said the combined company will enable significant cross-selling opportunities—in part by creating a more comprehensive portfolio to offer to customers by combining biologics development and manufacturing capabilities as well as bioproduction technologies in a single company.
Patheon has grown into a leading company in the $40 billion CDMO market with 2016 revenues of approximately 1.9 billion, as well as facilities primarily in North America and Europe, and a workforce of approximately 9000 professionals. Among Patheon’s recent acquisitions was an active pharmaceutical ingredients (API) manufacturing facility in Florence, SC, which the company agreed to purchase from Roche in November for an undisclosed price.
Thermo Fisher Scientific plans to integrate Patheon into its Laboratory Products and Services Segment, which last year generated $7.03 billion in revenue, up 6% from 2015, and accounted for more than one-third of the company’s total 2016 revenue of $18.27 billion.
“Patheon's development and manufacturing capabilities are an excellent complement to our industry-leading offering for the biopharma market,” Marc N. Casper, Thermo Fisher Scientific’s president and CEO, said in a statement. “Our combined capabilities will enhance our unique value proposition for these customers, create significant value for our shareholders, and further accelerate our company's growth.”
Thermo Fisher Scientific also said it expected to add 30 cents per share to the company’s adjusted earnings per share in the first full year after the close of the acquisition, as well as realize total cost-cutting potential or “synergies” of approximately $120 million by the third year following the close of the deal, to consist of approximately $90 million of cost synergies and approximately $30 million of “adjusted operating income” benefit from revenue-related synergies.
The adjusted measures exclude acquisition-related costs, such as charges for the sale of inventories revalued at the date of acquisition and significant transaction costs; restructuring and other costs/income; and amortization of acquisition-related intangible assets.
Thermo Fisher Scientific plans to acquire all issued and outstanding shares of Patheon for $35 per share in cash, or $5.2 billion, and assume approximately $2 billion of net debt. The buyer has obtained committed debt financing from Goldman Sachs Bank USA and Goldman Sachs Lending Partners, saying it expected to finance the purchase price with debt of approximately $5.2 billion and equity of approximately $2 billion.
The deal is expected to be completed by the end of this year, subject to customary closing conditions that include regulatory approvals, adoption of certain resolutions relating to the transaction at an Extraordinary General Meeting of Patheon's shareholders, and completion of the tender offer.
Thermo Fisher Scientific has entered into tender and support agreements with affiliates of JLL Partners and Royal DSM—which collectively hold an approximately 73% majority of Patheon shares—under which they have agreed to tender their shares in the transaction.
“We are confident that our combined offerings and Thermo Fisher's proven track record of disciplined M&A and successful integrations will take our business to the next level,” added Patheon CEO James C. Mullen.
