Thanks to GE, Thermo Fisher Will Buy Life Technologies

NEW YORK (TheStreet) -- It is not often that a big company buys units from a smaller company in order to solve the smaller company's antitrust woes. (Usually it's the reverse: a big company sheds units to satisfy antitrust regulators.) But that's the story behind General Electric (GE) agreeing to buy some pieces of Thermo Fisher Scientific (TMO), as reported by The Deal. And it seems like all parties will benefit.

Specifically, GE is buying Thermo Fisher's cell culture, gene modulation and magnetic beads businesses, including its HyClone cell culture media unit, for about $1.06 billion. TMO shares are down to around $110 and are down 1.4% for the year to date. GE shares are down slightly to $27.32 and are off 2.5% for the year to date.

Thermo Fisher has mainly been growing through acquisitions in recent years. Its independent chairman of the board is Jim Manzi, who heads Stonegate Capital, a private equity firm. Savvy readers with good memories may recall Manzi's past life as CEO of Lotus Development Corp., the software firm acquired by IBM (IBM) in 1995.

The sale was the price Thermo Fisher was told to pay by the European Commission in exchange for its approval last November of its $13.6 billion acquisition of Life Technologies (LIFE). The businesses being sold have sales of about $250 million, a drop in the bucket next to Thermo Fisher's 2012 sales of $12.5 billion.

The problem for the Europeans was that, with Life added to it, Thermo Fisher would have had nearly half the market in cell culture materials.

Life Technologies had sales of almost $3.8 billion in 2012. Combined, Thermo Fisher and Life should thus report sales of about $17 billion for 2013. That's still tiny next to GE's annual sales of almost $145 billion last year. But within their niche they're powerful. Life also has an e-commerce business that could create synergies for the rest of Thermo Fisher's products.

But this is about health care, not a conglomerate. How do Thermo Fisher and GE Healthcare stack up to one another?

GE Healthcare had revenue of $13.1 billion for the first nine months of 2013, which it expects to come to almost $17 billion for the full year. While GE Healthcare is larger than TMO by revenue, it has a broader product line including radiology equipment and health IT solutions where TMO doesn't compete.

The net result of the deal, and the completion of the Life acquisition, is to make TMO closer in size to GE Healthcare, but more tightly focused than its larger rival. Most analysts like the TMO story, with 12 out of 16 rating it a buy or overweight and none rating it an underweight or sell.

The one question analysts have is whether TMO will continue the Life policy of investing heavily in research after the acquisition. If it doesn't, it could show a higher bottom line in the short term in exchange for long-term growth. If it does, the growth in earnings may disappoint, leading to a fall in the share price.

So far analysts seem to be cheering the deal. ISI Group raised its target price on Thermo Fisher to $121.50 recently. The problem is that Thermo Fisher was trading at $110 before the deal. This could be a stock getting ahead of itself.

At the time of publication the author owned shares of GE.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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