Agilent’s Evolution Since Spinoff May Lead to Takeover: Real M&A

Agilent Technologies Inc. may finally be the right size for a takeover.

The $13 billion company completed the spinoff of its electronic measurement business last month, the latest in a series of moves to slim down since its separation from Hewlett-Packard Co. about 15 years ago. Now, its narrowed focus on faster-growing biological and chemical testing tools and its strong emerging-markets presence could attract interest.

Agilent’s position in the market for tools that analyze chemical mixtures is difficult to replicate and competitors that want to be in the industry would be better off buying their way in, said BTIG LLC. Danaher Corp., the $59 billion conglomerate with billions to spend on acquisitions, could fill gaps in its portfolio with an Agilent takeover, said FBR & Co. Thermo Fisher Scientific Inc. is another potential suitor, according to Jefferies LLC.

“With the two businesses split, the new Agilent becomes a much cleaner potential acquisition target for a larger player in the life-sciences space,” Brandon Couillard, a New York-based analyst at Jefferies, said in a phone interview. “It’s one of the most attractive businesses in the sector.”

Healthy Premium

Agilent may command about $48 a share, a 21 percent premium to its closing price yesterday, based on similar deals, said Tyler Howard, an analyst at Bellingham, Washington-based Saturna Capital Corp., which oversees about $4 billion, including Agilent shares. Ross Muken, a New York-based analyst at Evercore ISI, estimates a price tag in the same range. He puts Agilent’s fair value at $45 to $50 a share, and said any buyer would probably have to pay a premium to that.

Today, Agilent shares gained 1.5 percent to $40.37 at 10:48 a.m. New York time.

Representatives for Santa Clara, California-based Agilent and Waltham, Massachusetts-based Thermo Fisher declined to comment. A representative for Washington, D.C.-based Danaher didn’t respond to a request for comment.

Since its split from Hewlett-Packard, Agilent has sold off $6 billion in assets and completed two spinoffs of its own. That includes this year’s initial public offering of its electronic measurement business, Keysight Technologies Inc., which left Agilent focused on life-science technology.

“One of the big issues with the combined company was there was a lack of focus and they’d be better off separate -- well now they are,” Michael Cuggino, president and fund manager at Permanent Portfolio Family of Funds Inc. said in a phone interview. “That makes them attractive as bolt-on acquisitions to firms trying to gain share or to supplement existing business lines.”

Cuggino helps oversee about $7 billion, including shares of both Agilent and Keysight.

Market Leader

Agilent has a leading position in the market for liquid and gas chromatography mass spectrometry tools, which are used to analyze complex chemical mixtures for industries such as drug research and food safety testing, said Dane Leone, a New York-based analyst at BTIG. That’s a hard market to penetrate as a new entrant, he said.

“Generally, buying someone with that pre-existing market position is a better strategy,” Leone said.

That would be a motive for Danaher, which doesn’t have a strong position in that area, said Ajay Kejriwal, a New York-based analyst at FBR. The conglomerate could also cut costs and improve profitability at Agilent by incorporating the company into its management system, he said.

‘Deal Machine’

Danaher, the maker of everything from dental equipment to water filters, has spent about $3 billion on takeovers since May, including the $2 billion purchase of Nobel Biocare Holding AG. That’s when Danaher Chief Financial Officer Daniel Comas suggested it may have as much as $12 billion to spend on deals.

This month the company said it would be comfortable with about $8 billion in M&A capacity. Kejriwal said he thinks it has the ability to tackle a target as big as Agilent.

“This is a deal machine,” Kejriwal said. “They have this capacity and we have not seen that capacity being utilized. They’ve done some deals this year but nowhere close to what they could be doing. This would make a lot of sense.”

Thermo Fisher also has the balance sheet to tackle a deal of this size, and would be a logical suitor, said Couillard of Jefferies. The $50 billion maker of life-sciences equipment paid about $13.6 billion to acquire Life Technologies Corp. this year.

Agilent may prefer to be an acquirer, rather than a target, according to Michael Waterhouse of Morningstar Inc. If the company lowers costs, improves profit margins and makes better use of its balance sheet, a sale “doesn’t have to be in the discussion,” Muken of ISI said.

Even so, the steps the company has taken to unlock shareholder value have also made it a more attractive target.

“They’ve really been trying to reshape the portfolio such that maybe it looks a little cleaner for potential acquirers as well,” Howard of Saturna Capital said.

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