Thermo Fisher Extends Binge With $5.2 Billion Patheon Deal

(Bloomberg) -- Thermo Fisher Scientific Inc. extended its acquisition spree with the $5.2 billion purchase of Dutch drug-ingredients maker Patheon NV.

Thermo Fisher, which has turned into one of the world’s biggest manufacturers of diagnostic and testing equipment through deals, will pay $35 a share in cash for Patheon. That’s 35 percent above Patheon’s closing price Friday, before Bloomberg News reported that the companies were in talks.

The purchase adds to Thermo Fisher’s $22 billion buying binge over the past five years, based on data compiled by Bloomberg. Patheon will bring complex and harder to produce type grown out of living cells. Such biological therapies are increasingly important to drugmakers facing intense competitive pressure, and companies that have pioneered the therapies are now turning to contractors like Patheon to manage costs or make production more efficient.

“Thermo gains a higher-growth market,” said Paul Knight, an analyst at Janney Montgomery Scott LLC who advises buying the stock. “It’s a B+ deal, it’s not an A+ deal,” however, because some of Patheon’s rivals that use Thermo Fisher as a vendor may take their business elsewhere, he said.

Thermo Fisher’s shares rose 0.5 percent to $172.37 at 10:07 a.m. in New York, while Patheon jumped to $34.58.

Through Friday, Patheon’s shares had risen 24 percent since they were sold in an initial public offering in July at $21 each on the New York Stock Exchange. Backers led by private equity firm JLL Partners will earn a bonanza. Affiliates of JLL stand to reap $2.2 billion, or 4.8 times the $462 million they invested in March 2014, according to two people familiar with the matter, who asked not to be identified because the information is private. The return includes a 2015 dividend. The deal also offers a quick post-IPO exit for Dutch vitamin company Royal DSM NV,  Patheon’s second-largest shareholder.

Under Chief Executive Officer Marc Casper, the shares of Thermo Fisher have more than tripled in the past five years, outperforming both the Standard & Poor’s 500 Index and peers. The Waltham, Massachusetts-based company, with a market value of more than $67 billion, now offers equipment, instruments and supplies to laboratories and medical research facilities and is a major player in technology used to sequence the human genome.

Including debt, the price comes to about $7.2 billion, Thermo Fisher said in a statement Monday. Thermo Fisher got committed debt financing from Goldman Sachs Group Inc. for the deal, and expects to finance the purchase with debt of approximately $5.2 billion and equity of $2 billion. The transaction, expected to close by the end of the year, will boost Thermo Fisher’s earnings per share immediately, according to the statement.

Lucrative Exit

Patheon, incorporated in the Netherlands and with U.S. headquarters in Durham, North Carolina, was formed in March 2014 through the merger of JLL Partners-controlled Canadian drugmaker Patheon Inc. and the pharmaceutical business of DSM, which owns a stake of about 34 percent.

Paul Levy, who co-founded JLL in 1988, and other JLL executives who personally invested $70 million will garner about $336 million from their stake in addition to tens of millions of dollars in incentive fees, the people familiar with the deal said.

Among Thermo Fisher’s 2016 deals were the $4 billion purchase of testing and technology services provider buying electron microscope maker FEI Co. and the acquisition of Affymetrix Inc., which added technology used by researchers to study specimens at the cellular and genetic level. Thermo Fisher also bought DNA sequencer Life Technologies Corp. for more than $15 billion in 2014.

Goldman Sachs advised Thermo Fisher on the deal, and Wachtell, Lipton, Rosen & Katz provided legal counsel. Patheon was advised by Morgan Stanley, with Skadden, Arps, Slate, Meagher & Flom LLP providing legal counsel.

--With assistance from Dinesh Nair Ari Altstedter Aaron Kirchfeld and David Carey

To contact the reporters on this story: Cynthia Koons in New York at ckoons@bloomberg.net, Ed Hammond in New York at ehammond12@bloomberg.net, Manuel Baigorri in London at mbaigorri@bloomberg.net.

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Aaron Kirchfeld at akirchfeld@bloomberg.net, Cecile Daurat, John Lauerman