Biotech Values

[DewDiligence]

PKI—This write-up is three months old but I didn’t see it until now.

http://www.bloomberg.com/news/2011-02-24/perkinelmer-is-said-to-have-missed-buying-beckman-by-25-cents.html

›PerkinElmer Missed Buying Beckman by 25 Cents

By Jeffrey McCracken - Feb 24, 2011

PerkinElmer Inc. made a bet-the-farm offer to take over Beckman Coulter Inc. and had the highest bid in the final hours of this month’s auction for the medical- equipment maker, according to regulatory filings and people with knowledge of the matter.

It still lost. Danaher Corp., more than 10 times PerkinElmer in size, jumped in to top the company’s $83.25 bid by 25 cents a share, said the people, who declined to be identified because the talks were private.

The outcome has left PerkinElmer to consider whether it should find another large company to buy or whether it should put itself up for sale after it spent months pursuing Beckman, the people said. PerkinElmer’s market value is less than half of the $6.8 billion Danaher agreed to pay for Beckman. A purchase would have added diagnostic equipment to Waltham, Massachusetts- based PerkinElmer’s genetic screening and environmental testing businesses.

Beckman’s board, working with adviser Goldman Sachs Group Inc., determined that Washington-based Danaher represented the “best overall transaction” for shareholders, with a greater chance of closing the deal, according to a Beckman regulatory filing. While PerkinElmer had lined up about $7 billion in financing for a deal, according to the people, Danaher is using cash to fund about 25 percent of the acquisition, with the rest coming from debt and equity.

Potential Buyers

Initially, nine parties in addition to Danaher expressed interest in acquiring Brea, California-based Beckman for at least $70 a share, and had signed confidentiality agreements as of Dec. 10, according to a filing this month. After revised offers were received Dec. 22, Danaher’s $70 bid was one of the two lowest. The company was given several opportunities to re- enter the contest, the filing shows.

Mary Luthy, a spokeswoman for Beckman Coulter, said the company has no comment on the negotiations beyond what was disclosed in its regulatory filing.

Andrea Rachman, a spokeswoman for Goldman, declined to comment. Stephanie Wasco, a spokeswoman for PerkinElmer, and Matt McGrew, a spokesman for Danaher, didn’t return calls and e- mails seeking comment.

Four Parties

Four parties remained interested as of Wednesday, Feb. 2, according to the filing. Besides Danaher, bidders for Beckman included a combined offer from Apollo Global Management LLC and the Carlyle Group and a second private equity bid from TPG Capital and Blackstone Group LP, said people with knowledge of the talks. PerkinElmer was also still in, the people said.

Danaher was told Feb. 3 its offer wasn’t sufficient. The next day, Chief Executive Officer Lawrence Culp Jr. called Beckman Chairman Glenn Schafer to express his continued interest in acquiring the company, according to the filing, and Danaher, advised by Morgan Stanley, told Goldman it would increase its offer and was let back in.

The Apollo Carlyle group left the process before it got into the very final stages, two people said. That offer never reached $80, said one person familiar with their bidding.

Danaher, PerkinElmer and the TPG-Blackstone group continued to re-bid all weekend ahead of the purchase announcement on Monday, Feb. 7. PerkinElmer, referred to as “Potential Purchaser No. 3” in the filing, according to the people with knowledge of the talks, had said in a revised letter of interest Dec. 22 that it would go as high as $83 a share, the highest proposed bid at that point.

Higher Offer

PerkinElmer later submitted an offer of $83.25 a share as the auction came to a close on Sunday, Feb. 6. Danaher had bid $83, while the TPG-Blackstone offer stopped at $81.11, according to the filing and people with knowledge of the process.

Goldman went back to Danaher and told the company that it would win the Beckman auction if it bumped its bid to $83.50. That move put Danaher above PerkinElmer, and PerkinElmer wasn’t offered a chance to rebid at that point, said the people familiar with the discussions. At 11:30 p.m. California time that night, the board was told Danaher had raised its bid and voted to accept the deal, the people said.

Raising enough capital to acquire Beckman would have been a challenge for PerkinElmer, said Peter Lawson, an analyst at Mizuho Securities USA Inc. in New York. PerkinElmer’s market value is about $3.3 billion.

‘Old-School Diagnostic’

“It would have been a difficult acquisition and it probably wouldn’t have been the best fit,” Lawson said today in an interview. “Beckman’s business is very old-school diagnostic. The 25 percent of revenues for PerkinElmer that are diagnostic-related are at the higher end of a molecular diagnostic approach.”

Danaher is a better fit for Beckman because it’s a “high quality, almost private equity-like company” that could “buy a No. 4 or No. 5 player and turn it into a No. 1 player,” Lawson said.

The bidding war over Beckman, and Quest Diagnostics Inc.’s announcement today that it will buy Thermo Fisher Scientific Inc.’s Athena Diagnostics unit, signals that more such deals are likely, Lawson said.

“We’re definitely seeing an acceleration in both the life- science tool space and the diagnostics space,” Lawson said.

Quicker Closing

Banks often advise companies to accept offers from larger buyers that have more cash and available financing. In considering Danaher’s bid against Beckman’s, Goldman cited “a substantially higher certainty of closing,” a lower breakup fee and a deal structure that would result in a quicker closing, among other items. Those factors trumped the financing PerkinElmer had lined up with help from its adviser, Bank of America Corp.

PerkinElmer is still working with Bank of America and has yet to decide whether to pursue another acquisition or put itself up for sale, the people said. A purchase of Beckman would have almost tripled PerkinElmer’s $1.7 billion in annual sales.

While PerkinElmer’s projections for 2011 rely on surplus cash being used for deals, “the overall portfolio strategy of the company remains unclear,” according to a Feb. 15 report from Chicago-based Zacks Investment Research, which has a neutral rating on the stock. [LOL—since when is Zacks considered an expert on these sorts of things?] PerkinElmer has made at least 10 acquisitions since 2009, including VisEn Medical Inc., a molecular imaging company, last year.‹