PerkinElmer to Take Over Caliper

PerkinElmer ( PKI - Analyst Report ) , a worldwide leader in environmental and human health, recently revealed that it has inked a definitive agreement to buy Caliper Life Sciences ( ) . Caliper, based in Hopkinton, Massachusetts, is a front-runner in imaging and detection solutions with applications in diagnostics, environmental markets and life sciences research.

Caliper is a leading vendor of latest know-how permitting researchers to develop life-preserving diagnostics tests and medicines more rapidly. The company aims to bridge the gap between in vitro assays and in vivo outcomes, and then convert results to develop cures for diseases.

The aggregate net purchase price is about $600 million, or $10.50 per share, on a cash basis. The consideration reflects a premium of 42% for shareholders of Caliper Life Sciences, vis-à-vis the end of day share price of $7.39, as of September 7, 2011.

According to PerkinElmer’s chairman and CEO, the takeover complements the company’s cutting-edge products in diagnostics, environmental and food markets as well as in life sciences. Furthermore, the combined entity will benefit from a robust pipeline of upcoming products.

The acquisition will deepen PerkinElmer’s suite of offerings in many ways as – adding a cutting-edge micro-fluidics platform for proteomics and genomics applications, providing a wider range of products for cellular, molecular, animal and tissue imaging to facilitate medical research; ensuring thorough methods for identifying biotherapeutics development and therapeutic response and availing valuable sample preparation methods for scientific workflow, namely futuristic DNA sequencing.

The takeover has received unanimous support from the Boards of both companies. The deal is expected to fructify in the fourth quarter of the current fiscal year. The transaction is anticipated to be accretive to PerkinElmer’s fiscal 2012 first call consensus adjusted earnings per share by about 8 cents and dilutive to the company’s earnings per share (on a reported basis) by about a nickel.

The deal is subject to standard closing conditions, including acceptance of Caliper Life Sciences shareholders and expiration of waiting period as per the Hart-Scott-Rodino Antitrust Improvements Act. Bank of America Merrill Lynch and Rothschild were the financial advisers to PerkinElmer. Perella Weinberg Partners was the exclusive financial advisor of Caliper.

PerkinElmer has established itself as a market leader, particularly in the genetic screening segment, and holds one of top two market share positions in several important subsets of the life sciences technology and genetic screening businesses.

The company continues to execute well across all its product lines aided by rebounding markets and cost containment efforts. PerkinElmer’s transfer of select manufacturing to China has expanded its operating margins. PerkinElmer has increased its productivity and improved product mix in favor of higher value added products, resulting in higher operating margins.

PerkinElmer recently updated its adjusted earnings per share forecast for fiscal 2011, to a higher range of $1.64 to $1.68 (earlier $1.62 to $1.67). Organic revenue is still expected to increase in the mid-single digits.

PerkinElmer, however, operates in a highly competitive industry characterized by rapid technological change and evolving industry standards. As a result, the company must make large investments in R&D in order to maintain a competitive pipeline. PerkinElmer competes with Thermo Fisher Scientific ( TMO - Analyst Report ) among others.

PerkinElmer's exposure to poor end market visibility might result in a relatively unattractive risk-reward trade-off for the stock. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).