In the wake of Thermo Fisher Scientific, Inc.’s TMO impending acquisition of Affymetrix, Inc. AFFX, the latter has finally chosen to stick to Thermo Fisher’s $1.3 billion takeover bid. With this decision, Affymetrix thereby completely nullifies Origin Technologies’ $1.5 billion rival takeover bid, which was recently pitted against Thermo Fisher’s offer.
In Jan 2016, Thermo Fisher offered to buy Affymetrix for $1.3 billion, which was duly accepted by the latter.
On completion, the Thermo Fisher-Affymetrix deal is expected to generate attractive financial returns, including an accretion of 10 cents to its adjusted EPS in the first full year of acquisition.
However, on Mar 18, Origin entered the scene with an unsolicited, non-binding proposal to buy Affymetrix for $1.5 billion. Interestingly, Origin’s offer came only a week before Affymetrix’s shareholders were to vote for the Thermo Fisher-Affymetrix merger.
Apparently, Origin’s offer seemed lucrative as it offered $16.10 per share in cash as terms of the deal, exceeding Thermo Fisher’s $14 offer that Affymetrix has already accepted.
Affymetrix’s management was initially largely in denial of Origin’s proposal and solicited its shareholders to vote in favor of the Thermo Fisher-Affymetrix deal. This is because, after analyzing the proposal, Affymetrix’s advisory board concluded that Origin’s $1.5 billion price offer was grossly inadequate in the context of the costs involved in completing the deal and other related aspects, including a termination fee payable to Thermo Fisher.
Thermo Fisher too, holding the same view as Affymetrix, issued an open letter immediately after Origin’s offer was out in the open, describing the Thermo Fisher-Affymetrix merger as being in the best interest of Affymetrix’s shareholders. In its open letter, Thermo Fisher pointed out the major loopholes in Origin’s proposal, like the dicey financial credibility of Origin, lack of clarity with regard to financing commitment documentation and a few other inadequacies – which made this proposal an insufficient bona fide one.
All these facts naturally led analysts to believe that Affymetrix will continue to support its earlier approved deal with Thermo Fisher.
However, on Mar 23, Affymetrix announced that its management is engaged in negotiating the terms of the proposed deal with Origin. This hinted at the possibility of the Origin-Affymetrix merger taking place, provided Affymetrix’s shareholders comply with the deal. Thereafter, on Mar 26, Origin indicated its intention to carry forward this deal with Affymetrix only on the basis of the terms set forth in its Mar 22 proposal.
These terms contemplated a reverse termination fee of $100 million, representing the maximum amount of recovery available to Affymetrix if Origin fails to obtain financing. However, Affymetrix might not be entitled to this fee if the Committee on Foreign Investment in the U.S. blocks any of Origin’s transactions.
Post revelation of this news, Affymetrix, in consultation with its financial and legal advisors, compared both the deals on a risk weighted basis. After careful evaluation, Affymetrix concluded that although Origin’s bid offer is higher than that offered by Thermo Fisher, the material risk associated with the Origin deal is much greater than the prior-accepted deal and the reverse termination fee of $100 million will not be adequate to cover that risk.
Consequently, Affymetrix has finally recognized the Thermo Fisher offer as the more superior one. Thermo Fisher’s management has favored this response by encouraging the Affymetrix’s shareholders to vote in favor of the $1.3 billion deal on Mar 31. Thermo Fisher hopes to complete the deal immediately after the voting process is over.
We believe Thermo Fisher’s win in this bidding war reflects its credibility as a potential acquirer in the healthcare space, which has so far successfully extended its presence in high-growth markets and generated cost and revenue synergies; thereby creating shareholder value.
Thermo Fisher currently retains a Zacks Rank #3 (Hold) while Affymetrix has a Zacks Rank #2 (Buy). Some well-ranked stocks in the medical sector are Hill-Rom Holdings, Inc. HRC and OraSure Technologies, Inc. OSUR. Both the stocks sport a Zacks Rank #1 (Strong Buy).
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