Sigma-Aldrich Corp. (SIAL) went toe-to-toe against larger rival Thermo Fisher Scientific Inc. to acquire Life Technologies Corp. (LIFE), said people with knowledge of the matter, bidding through the weekend before falling short against Thermo’s $13.6 billion offer.
St. Louis-based Sigma-Aldrich, which has a market capitalization of $8.9 billion, bid around $12.5 billion for Life, said the people, who asked not to be idenitified because the process was private. If successful, Sigma would have been one of the rare companies to acquire a bigger peer.
Sigma-Aldrich, a producer of diagnostic and laboratory products, wanted to buy Carlsbad, California-based Life, which makes laboratory equipment that helps to map DNA, to gain market share and compete with Thermo Fisher. (TMO)
“It was a scale play,” said Alex Morozov, an analyst with Chicago-based Morningstar Inc. (MORN), in a phone interview. “Sigma is a smaller player. If they want to compete with Thermo, they have to catch up in size.”
Sigma-Aldrich is a more specialized producer, so there is room for more than one player, Morozov said. There is product overlap, and Thermo Fisher could gain an advantage by lowering its costs and offering a larger range of products, he said.
While Sigma would have looked to sell Life’s next- generation sequencing business if its bid had been successful, Thermo Fisher is betting it will be an area of growth. Sigma, which had hired Morgan Stanley to advise on the effort, had conversations with Roche Holding AG of Switzerland and Santa Clara, California-based Agilent Technologies Inc. (A) that led it to believe it could sell that business, said a person familiar with the matter.
A representative for Morgan Stanley declined to comment. Daniel Grotzky, a spokesman for Roche, declined to comment, while Susan Berg, a spokeswoman for Agilent, didn’t return a call seeking comment.
Life makes laboratory equipment that helps to map DNA, information used to diagnose disease, identify risks of certain conditions or better target medicines. The market for gene tests may expand to $25 billion from $5 billion within a decade as more doctors use a patient’s genetic makeup to tailor treatments, according to a report last year from UnitedHealth Group Inc. (UNH)
Thermo Fisher CEO Marc Casper told investors in a presentation after the deal was announced yesterday that the next-generation sequencing business gives his company, “exciting prospects for long-term growth.”
“Clearly, the next-generation sequencing business is the star in Life’s portfolio,” Morningstar’s Morozov said. “It could be a multi-billion dollar marketplace in five years. For Sigma-Aldrich, it would have been a tool to pay for the deal.”
Sigma-Aldrich reported revenue of $2.6 billion last year, compared with Thermo Fisher’s $12.5 billion in sales. Buying Life would have added $3.8 billion to Sigma-Aldrich’s revenue, according to data compiled by Bloomberg.
Sigma will now have to compete against an even larger rival. The company’s product line includes some specialty products and items that are tougher to find, Morozov said. At the same time, Thermo could have an advantage because the company will be able to lower costs in product manufacturing and distribution. When Thermo Fisher announced the deal, the company said in a statement that it has identified $275 million in savings and improved revenue from the deal.
“Thermo has definitely entrenched itself as a lab supplies giant,” Morozov said. “If a lab wants to go to one supplier, then Thermo Fisher is the better candidate.”
Sigma-Aldrich’s stock fell 3 percent in New York yesterday. Quintin Lai, a spokesman for the company, didn’t return a call seeking comment.
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