By Joseph Walker
Acquisition talks have given new momentum to Life Technologies
Corp.'s (LIFE) shares after years of shareholder complaints about
the company's leadership and its stock being undervalued.
For more than a decade, the Carlsbad, Calif., company operated a
growing business of providing research equipment to laboratories.
However, Life's share price rose slowly because of concerns about
the company's management and its stumbles last year in launching
its newest genetic-sequencing machines. The result prompted Life's
board to say in January that it was evaluating strategic options,
which reportedly include offers from lab-equipment providers
attracted to the company's core business, those eyeing its newer
genetics business and private-equity firms wooed by Life's balance
sheet.
"Life is a company with nearly 85% recurring revenues, has the
highest operating margins among its peers, and is a free-cash-flow
machine," said Jonathan Groberg, an analyst at Macquarie Capital
Inc. "By any objective measure, it's an attractive asset in the
industry."
A buyout group--including Blackstone Group LP (BX), Carlyle
Group LP (CG), KKR & Co. (KKR) and Singaporean state investment
company Temasek Holdings Ltd.--is talking about a joint bid for
Life of about $11 billion, or about $62 a share, said people
familiar with the matter. That bid price is 66% higher than Life's
52-week low, but below the company's recent stock price of $66,
which has risen 35% this year amid takeover speculation.
If the buyout group makes an offer for Life Technologies, it is
likely to run up against Thermo Fisher Scientific Inc. (TMO), a
maker of laboratory equipment that submitted a bid Tuesday,
according to people familiar with the matter. In addition, Roche
Holding AG (RHHBY, RO.EB, ROG.VX), which has an interest in gene
sequencing, reportedly has been mulling a bid for Life.
Life Technologies declined to comment for this story, as did
Thermo Fisher and Roche.
Life was formed nearly five years ago after the merger of its
predecessor, Invitrogen Corp., with Applied Biosystems Inc., in a
deal valued at $6.7 billion. The company now has about 10,000
employees, sells more than 50,000 products, and owns or licenses
more than 5,000 patents. For much of its lifespan, Life has
provided equipment used in forensics, to help develop drugs, and to
improve food and water safety.
By the end of last year, the company's sales had risen five-fold
to $3.8 billion since 2003, but the stock's compound annual growth
rate during that time was only 3.83%.
"There's always been the thought that current management is
creating an overhang on shares," said David Ferreiro, an
Oppenheimer & Co. analyst. "The entire Street thinks that
someone else can run Life better than Life can."
At the center of the criticism is Gregory Lucier, Life's chief
executive since 2003. Mr. Lucier, has been blamed for spending too
freely on acquisitions and not focusing enough resources on
increasing sales of the company's consumable research products and
services, which comprise roughly 85% of its revenue, according to
analysts. Mr. Lucier scored "well below average" and was ranked
last in a recent survey by Brendan Wood International that gauged
shareholder confidence in the chief executives of 30 large
health-care companies.
Despite the company's success in its core business, Life has
pushed hard into making next-generation genetic-sequencing
machines. Just a few years ago, the cost of sequencing a human
genome--the entirety of a person's genetic makeup--was $300,000 and
used primarily by academic and commercial researchers.
Costs have come down considerably in recent years, and companies
are racing to make faster and more accurate sequencers to help
treat patients. As a result, the global market for next-generation
sequencing machines, projected to be $1.3 billion this year, is
seen rising 61% by 2016, according to Mr. Ferreiro.
To tap into this potential market, Life spent roughly $725
million to buy Ion Torrent Systems Inc., a small but high-potential
sequencing company, in 2010. The acquisition gave Life a
competitive next-generation sequencing product, though it is still
unprofitable and considered inferior to that of market leader
Illumina Inc. (ILMN).
Researchers have praised the Ion machines' significantly lower
cost and speed, but Life has been criticized for missing deadlines
in releasing upgrades to improve what researchers say is its subpar
accuracy and ease-of-use. Last year, the company said it would map
the human genome for $1,000--a third of what Illumina charges--by
the end of 2012, but still hasn't done so.
"They've overpromised and underdelivered," said Kevin Shianna,
senior vice president of sequencing operations at the New York
Genome Center, a nonprofit research center. "It's still early, but
they've hit a bunch of roadblocks."
Some physicians and researchers, however, said that the
machines' use of semiconductor chips could allow it to swiftly
improve and that their lower costs are attractive to smaller
research centers for which Illumina's machines may be
unaffordable.
Life has its supporters on Wall Street, including the hedge
funds Paulson & Co. and Glenview Capital Management LLC, which
are among the company's top three shareholders. The Brendan Wood
shareholder confidence survey found that though management scored
poorly, Life received relatively high marks in the "confidence in
long-term growth" category.
In January, the company's board said it had hired Deutsche Bank
and Moelis & Co. to help review its strategic options. The
review had begun last summer, when Life's "stock was trading in the
low $40s," Mr. Lucier said during a conference call with analysts
in February.
If there is a deal, and depending on what the final sale price
is, a private-equity buyer could look to cut costs in research and
development and manufacturing, and even sell Life's next-generation
sequencing business, which could go for between $1.5 billion and
$2.4 billion, Mr. Groberg speculated.
Thermo Fisher, a lab instruments and equipment maker with sales
of $12.5 billion last year, could possibly get even more value out
of the deal, as its overlap with Life's customer base would allow
for significant savings in sales and administrative overhead costs.
The next-generation sequencing business likely would be considered
a bonus to Life's larger consumable business, analysts said.
-Ryan Dezember and Dana Cimilluca contributed to this
article.
Write to Joseph Walker at Joseph.Walker@dowjones.com
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