Invitrogen Gets Slammed After Dexter, Life Technologies Deals

Shares of Invitrogen (IVGN) plunged 24% Monday after the company announced that it would acquire Dexter (DEX) and Life Technologies (LTEK) for a combination of cash and stock valued at about $1.9 billion.

Investors apparently saw the companies being acquired as the primary beneficiaries of the proposed deals, sending Dexter's shares up 9% and shares of Life Technologies up 8%.

The agreement includes a $65 million break-up fee, should Dexter back out of the deal. But the Windsor Locks, Conn.-based company is unlikely to do so.

Dexter has been busy fending off hostile takeover bid attempts by International Specialty Products (ISP), a Delaware-based manufacturer of specialty chemicals and mineral and filter products. Last month, Dexter board members rejected the International Specialty Products bid. Executives at the company, which makes specialty biological and biochemical products, also announced plans to sell off two major businesses for $675 million.

After Invitrogen announced Sunday that it would acquire Dexter, as well as Life Technologies, a source close to International Specialty Products said the company was planning to drop its proxy solicitation and withdraw its tender offer, "depending upon market developments."

Invitrogen's stock fell 18 3/4 to close at 58 3/8. Dexter's shares climbed 4 1/8 to settle at 52 1/8. Shares of Life Technologies rose 4 to end at 53 after reaching a 52-week high of 57 3/4.

Officials at Invitrogen, a San Diego-based company which makes gene research kits and other scientific research products, said they expected the acquisition of Dexter and Life Technologies to increase the company's cash earnings per share by 30 percent in 2001, excluding nearly $1.5 billion in goodwill. Invitrogen estimated that the combined company will have annual revenues in excess of $500 million and approximately $100 million in operating cash flow.

Under the terms of the agreements, Invitrogen will acquire all of the outstanding common stock of Dexter for $62.50 a share, or approximately $1.5 billion, and all of the outstanding common stock of Life Technologies, other than the shares held by Dexter, for $60 a share, or approximately $400 million.

"This combination creates a new global leader in molecular biology research and services," said Lyle C. Turner, Invitrogen's chairman and chief executive. Turner will retain the same titles in the combined company.

The proposed acquisition is subject to the approval of the shareholders of Dexter, Life Technologies and Invitrogen, as well as the completion of the previously announced sales of Dexter's electronics materials and nonwoven materials businesses which includes food packaging and medical and industrial products.

While analysts seemed optimistic about the potential of the proposed company, they conceded that shares of Invitrogen could be dragged down initially on investors' concerns about Life Technologies' revenue growth potential.

Rob Olan, an analyst with Chase H&Q, pointed out that Life Technologies anticipated revenue growth of 12% to 13% in 2000, while Invitrogen projects 25% top-line growth for 2000. The combined company would have 14% to 15% annual top-line growth, and about 17% to 18% bottom-line growth, but both would fall below the estimated growth for Invitrogen alone.

"In the short term, Invitrogen shareholders are likely to experience some downward volatility as investors take time to digest the impact of this deal," Olan said. "In the long term, we believe Invitrogen will be one of the major players to take maximum advantage of recent and future advances in genomics and proteomics." Chase Securities maintains its buy rating on the stock. It has had an underwriting relationship with Invitrogen within the last three years.

Other analysts were similarly optimistic about the potential of the proposed powerhouse.

"Invitrogen is fast becoming the industry's leading provider of the tools and re-agents of the genome era," said Todd Nelson, analyst at Merrill Lynch, noting that the combined company will boast one of the industry's largest product portfolios, with potential annual revenues of more than $600 million.

Merrill Lynch figures the combined company will be poised to capture a significant share of the rapidly expanding market in human genome and related products. If the merger is successful, Nelson estimated the resulting company will be able to introduce as many as 150 new products annually, in addition to Invitrogen's approximately 5,500 existing products. Life Technologies, based in Rockville, Md., develops and manufactures more than 10,000 products used in life sciences research genetic engineering. Merrill Lynch maintains a long-term buy rating on the Invitrogen stock. It makes a market in the company's securities, but does not report any underwriting relationships with Invitrogen.

Carl Byrnes, an analyst at Dain Rauscher Wessels, called the proposed company a molecular research "powerhouse" that will lead the industry in gene cloning and genome analysis techniques.

The firm cited the "enormous" amount of intellectual property held by the combined company, including more than 200 company-owned patents, and 300 technology licensing agreements involving an additional 400 patents.

"The value of these patents combined with rights for new products arising from discoveries involving its many alliances could be an area of significant long-term upside," Byrnes predicted in a report released Monday, adding that the merged company could generate at least $30 million just by eliminating duplicative systems. Dain Rauscher rates the Invitrogen stock a strong buy, with a price target of $100. The firm has helped underwrite a public offering of the corporation over the past three years.

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