Here’s Why Thermo Fisher Scientific Inc. (NYSE:TMO) Is a Buy After Its Upcoming Purchase of Patheon (NYSE:PTHN)

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Shares of Patheon NV (NYSE:PTHN) jumped by more than 33% on May 15th, after it agreed to be acquired by major biotechnology firm Thermo Fisher Scientific Inc. (NYSE:TMO) in a deal valued at about $7.2 billion.

Patheon is a leader in the $40 billion contract development and manufacturing organization market. It provides a wide array of solutions to help satisfy the needs of biopharmaceutical firms in those areas.

Transaction Terms

Thermo Fisher will launch a tender to acquire the entire company at $35 apiece in cash, and will also assume approximately $2 billion in debt.


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The company expects to finance the purchase price with a combination of debt and equity and has secured debt financing from Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC.

Thermo Fisher also struck agreements with affiliates of JLL Partners and Royal DSM, which collectively hold about 73% of Patheon shares, for the entities to tender their shares in the offer.

The boards of both companies approved the deal, which is expected to be completed by the end of 2017, subject to the necessary closing conditions.

On completion, Patheon, which generated $1.9 billion in revenue last year, will be integrated into Thermo Fisher’s Laboratory Products and Services Segment.

The transaction is expected to be accretive to Thermo Fisher’s adjusted earnings per share by 30 U.S. cents in the first full year following closing. By the third year, the company expects to realize about $120 million in total synergies.

Optimistic Outlook

Top executives from both firms were bullish about the deal, with Thermo Fisher President and CEO Marc Casper noting that it would complement its offerings for the biopharma market.

“Our combined capabilities will enhance our unique value proposition for these customers, create significant value for our shareholders and further accelerate our company’s growth,” Casper said in a May 15th release.

Patheon CEO James Mullen, meanwhile, hailed Thermo Fisher’s track record in M&A and successful integrations, saying that these will bring the company’s business to the next level.

Financial Results

Both Patheon and Thermo Fisher posted strong financial results during their respective first quarters.

In the three months ended January 31st, Patheon reported revenue of $457 million, representing a 13% increase on a yearly basis, driven by growth across all three of its segments.

The company also swung to net income of $28.3 million from a net loss of $22.1 million reported a year earlier.

Thermo Fisher, meanwhile, booked net income of $551.4 million during its first quarter that ended April 1st, up from net income $402.2 million reported in the comparable 2016 period.

Revenue for the period rose 11% year on year to $4.77 billion.

Key Shareholders

Patheon’s largest shareholder is Wellington Management Group LLP, which held 4.60 million shares in the company valued at $121.3 million as of the end of March 31st.

Thermo Fisher’s biggest stakeholder, meanwhile, is Massachusetts Financial Services Co. MA, which owned 28.43 million shares in the company valued at $4.37 billion as of the same period.

Patheon closed the day trading at $34.60, up 33.08%, while Thermo Fisher settled at $172.26, up 0.43%.