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Thermo Fisher Scientific to buy Life Technologies

Thermo Fisher Scientific plans to pay about $13.6 billion for Life Technologies Corp. in a deal that will position the scientific instrument maker to benefit from the expected growth of personalized medicine, which uses genetic analysis to tailor treatments to patients.

Life Technologies started on Grand Island in 1962 as GIBCO, Grand Island Biological Co.

Thermo Fisher – which is based in Waltham, Mass. – said Monday morning it has agreed to spend $76 in cash for each share of Life Technologies, which is based in Carlsbad, Calif. Shares of both companies then started climbing and continued to rise into the afternoon.

Life Technologies offers more than 50,000 products and delves into genetic analysis and engineering, stem cell therapies and chemicals used in forensics and food safety. Its next-generation DNA sequencing, currently used in research labs, is designed to sequence a person’s entire genome in one day for $1,000, which is faster and cheaper than previous forms of analysis.

DNA sequencing helps analyze a person’s genetic predisposition for diseases such as cancer and can potentially help doctors better understand how a disease will grow, allowing them to focus on more effective treatments. Thermo Fisher CEO Marc N. Casper said they expect that technology to be a key driver of long-term growth.

“Over time, the expectation is there will be more and more clinical applications for that technology, meaning that doctors can then use the information to make determinations on disease state and what course of action they should take,” he said.

Morningstar analyst Charlie Miller said DNA sequencing already is used in areas such as oncology and prenatal diagnostic testing, and he expects “significant adoption” of the Life Technologies sequencing over the next five years.

The analyst wrote in a research note that he considers that next-generation sequencing business to be “the best in the industry,” and he said it will fill a major gap in Thermo Fisher’s product portfolio.

“Life’s core business has been stagnant for a while, so the hope is Thermo Fisher, being a better operator, will reinvigorate this unit,” Miller wrote.

Life Technologies was formed in November 2008 through the combination of Invitrogen Corp. and Applied Biosystems Inc. It earned about $430.9 million, or $2.40 per share, last year on $3.8 billion in revenue.

Invitrogen owned the former GIBCO plant on Grand Island. The 275,000-square-foot complex on Grand Island has changed from GIBCO to Life Technologies, to Invitrogen and back to Life Technologies, and now, presumably, to Thermo Fisher. The Grand Island facility makes cell culture media and reagents, powders and liquids that scientists use as nutrients to grow cells. The plant employed 582 at the beginning of the year.

The Grand Island company began when Robert Ferguson, a former Roswell Park Cancer Institute employee, started a tissue culture company in his garage.

Thermo Fisher expects the acquisition to add between 90 cents and $1 to its adjusted earnings per share in the first full year after it closes.

Analysts say the deal will give Thermo Fisher much more than DNA sequencing. They note that 85 percent of Life Technologies’ revenue is recurring, so there will be a steady source of cash.

The companies expect the deal to close early next year. The $13.6 billion price does not include $2.2 billion in debt that will be assumed as part of the deal.

Life Technologies shareholders and regulators still need to approve the acquisition, but the boards of both companies have already backed it. Thermo Fisher has obtained financing commitments for the deal from JP Morgan and Barclays.

Shares of Life Technologies have shot up more than 38 percent so far this year and set several record highs by the end of last week. Much of that climb started after the company said Jan. 18 that it had retained Deutsche Bank Securities and Moelis & Co. to help conduct a strategic review of its business, but it had not decided on a course of action.

Its shares then climbed again last month after the Wall Street Journal reported that investment manager KKR & Co. was thinking about pairing up with other private equity firms to pursue Life Technologies. The report, citing anonymous sources, also named Thermo Fisher as a possible bidder.

Following the announcement, credit rating agency Moody’s Investors Service put Thermo Fisher on review for downgrade because the deal would more than double the debt it is carrying.

Life Technologies shares jumped 7.5 percent, or $5.11, to $73.11 on Monday, while Thermo Fisher fell $1.01, or 1.27 percent, to $78.58.