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8-K - FORM 8-K - THERMO FISHER SCIENTIFIC INC. | y88439e8vk.htm |
EX-99.1 - EX-99.1 - THERMO FISHER SCIENTIFIC INC. | y88439exv99w1.htm |
EX-99.2 - EX-99.2 - THERMO FISHER SCIENTIFIC INC. | y88439exv99w2.htm |
Exhibit 99.3
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
CORPORATE PARTICIPANTS
Ken Apicerno
Thermo Fisher Scientific, Inc. VP of IR
Thermo Fisher Scientific, Inc. VP of IR
Marc Casper
Thermo Fisher Scientific, Inc. President, CEO
Thermo Fisher Scientific, Inc. President, CEO
Frank Witney
Dionex Corporation President, CEO
Dionex Corporation President, CEO
Pete Wilver
Thermo Fisher Scientific, Inc. SVP, CFO
Thermo Fisher Scientific, Inc. SVP, CFO
CONFERENCE CALL PARTICIPANTS
Quintin Lai
Robert W. Baird Analyst
Robert W. Baird Analyst
Jon Wood
Jefferies & Company Analyst
Jefferies & Company Analyst
Marshall Urist
Morgan Stanley Analyst
Morgan Stanley Analyst
Doug Schenkel
Cowen and Company Analyst
Cowen and Company Analyst
Tycho Peterson
JPMorgan Analyst
JPMorgan Analyst
Peter Lawson
Mizuho Securities Analyst
Mizuho Securities Analyst
Sung Ji Nam
Gleacher & Company Analyst
Gleacher & Company Analyst
Dan Leonard
Leerink Swann Analyst
Leerink Swann Analyst
Derik De Bruin
UBS Analyst
UBS Analyst
Michael
Cherny
Deutsche Analyst
Deutsche Analyst
Valerie
Dixon
Citigroup Analyst
Citigroup Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by. Welcome to todays conference call and webcast to
discuss Thermo Fishers acquisition of Dionex. At this time, all participants have been placed in a
listen-only mode, and the floor will be open for your questions following the presentation.
(Operator Instructions)
In the interest of time, management requests that you please limit yourself to one question and one
single follow-up. (Operator Instructions).
Thank you. I would now like to turn the call over to Mr. Ken Apicerno, Vice President of Investor
Relations at Thermo Fisher Scientific. Please go ahead, sir.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
Ken Apicerno - Thermo Fisher Scientific, Inc. VP of IR
Thank you, and good morning, everyone. Welcome to the conference call to discuss Thermo Fishers
acquisition of Dionex, which was announced earlier this morning.
On the call today we have Marc Casper, our President and Chief Executive Officer; Pete Wilver, our
Chief Financial Officer; and we are also joined by Frank Witney, President and Chief Executive
Officer of Dionex.
We will be using a slide presentation during todays call. The presentation is available in the
Investor Relations section of both Thermo Fishers and Dionexs websites. After the prepared
remarks, Marc, Pete and Frank will be available to take your questions.
During the call, we will be making certain forward-looking statements, so please review the Safe
Harbor language found in our presentation on slide 2.
So before we begin, let me briefly cover our Safe Harbor statement. Various remarks that we may
make about the Companys future expectations, plans and prospects constitute forward-looking
statements for purposes of the Safe Harbor provisions under the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those indicated by these
forward-looking statements as a result of various important factors, including those discussed in
Thermo Fishers and Dionexs respective quarterly and annual reports, under the caption Risk
Factors, which are on file with the Securities and Exchange Commission and available on each
companys respective websites, as well as the possibility that expected benefits related to the
transaction may not materialize as expected, the transaction not being timely completed, if
completed at all, prior to the completion of the transaction, Dionexs business experience
disruptions due to transaction-related uncertainty or other factors, making it more difficult to
maintain relationships with employees, licensees, other business partners or governmental entities,
and the parties being able to successfully implement integration strategies.
While we may elect to update forward-looking statements at some point in the future, we
specifically disclaim any obligation to do so, even if our estimates change; therefore, you should
not rely on these forward-looking statements as representing our views as of any date subsequent to
today.
Also during the call, we will be referring to certain financial measures not prepared in accordance
with generally accepted accounting principles, or GAAP, such as adjusted EPS, adjusted operating
income and free cash flow. We believe that use of non-GAAP measures helps investors to gain a
better understanding of our core operating results and future prospects, consistent with how
management measures and forecast the Companys performance, especially when comparing such results
to previous periods or forecasts.
So with that, I will now turn the call over to Marc.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thank you, Ken, and good morning, everyone, and thank you for joining us on such short notice. As
Ken mentioned, Im here with Pete Wilver, and we are pleased to be joined by Frank Witney, the CEO
of Dionex.
Let me begin by saying we are very excited about this transaction, which is extremely compelling
from a technology, market and financial perspective. As you know, at Thermo Fisher, we have been
executing on our strategy of effectively deploying our capital to create long-term shareholder
value. This includes making strategic acquisitions that strengthen our competitive position as a
global industry leader.
Acquiring Dionex is consistent with our strategy of accelerating growth by increasing our depth of
capabilities to serve attractive end markets. It offers technologies that are complementary to our
leading scientific instruments offering, and expands our presence in growing applied markets, such
as environmental analysis, water testing and food safety. It also strengthens our
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
market presence in Asia-Pacific region, where, as you know, we have been making significant
investments to expand in China to serve the specific needs of our customers there.
Before we review the details of this transaction, I would like to ask Frank to say a few words on
todays announcement. Frank?
Frank Witney - Dionex Corporation President, CEO
Thank you, Marc. Let me begin by saying that I share Marcs sentiments that this is a very exciting
transaction that offers significant benefits for all of our stakeholders. First, this transaction
offers immediate and significant value for all our shareholders. Dionex shareholders will receive
$118.50 per share in cash for each share of Dionex stock they own. This represents a 32% premium to
our average closing stock price over the last 60 trading days. This valuation recognizes all of the
hard work and effort that has gone into making Dionex the company that it is today.
I want to thank all of our employees for their contributions and their continuing focus on serving
our customers by providing top-quality products and services.
We are truly excited about what this transaction represents for Dionex customers. Thermo Fishers
commitment to innovation will fuel our ongoing technology development and their global
manufacturing and commercial presence will significantly strengthen our ability to serve our
customers around the world.
Thermo Fisher has a culture that values innovation and excellent customer service, just as we do.
As part of a larger organization, we also believe there will be significant opportunities for our
employees to continue to develop their careers.
In summary, we are pleased to be joining Thermo Fisher and are excited about the opportunities that
it will present. All of us at Dionex are proud of what we have accomplished and we look forward to
working with the Thermo Fisher team to ensure a smooth and seamless transition. I hope you share
our enthusiasm about the many benefits we expect from this transaction. With that, I will now turn
the call back to Marc.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thank you, Frank. Turning back now to the presentation, slide 4 provides an overview of Thermo
Fisher. I think most of you on the call know who we are. This highlights our industry-leading
scale, depth of capabilities and leading brands.
Turning to slide 5, for those of you who arent familiar with Dionex, it is a leading manufacturer
and marketer of chromatography systems, serving life sciences and drug discovery markets as well as
growing applied markets, including environmental analysis, food safety, and other industrial
sectors. More specifically, Dionex is a leading provider of ion chromatography technologies having
introduced the first ion chromatography system for water analysis shortly after its founding in
1975.
The Company has consistently grown since then through a combination of innovation and global
expansion. Today, Dionex has more than 1600 employees in 21 countries spanning six continents and
generated $420 million in revenues in their fiscal 2010.
As you can see from the pie chart, Dionex generates more than 70% of its revenues outside North
America, with a significant presence in the Asia-Pacific region, which has been a key growth area
and investment focus for Thermo Fisher. In fact, 35% of Dionexs revenues are generated in
Asia-Pacific, and this provides a great opportunity for Thermo Fisher to increase our footprint in
those markets.
Before I discuss some of the strategic benefits of this combination in greater detail, let me
provide a quick overview of the deal terms, which you can see on slide 6. This is an all-cash
tender offer for a total purchase price of approximately $2.1 billion. The
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
consideration represents a 21% premium to Dionexs closing stock price on December 10, the last
trading day prior to todays announcement.
Also, as Frank said, the purchase price represents a 32% premium to Dionexs average closing stock
price over the last 60 trading days. This is an accretive transaction and is not conditioned on
financing. We will fund this transaction through cash on hand and proceeds from committed financing
from Barclays and JPMorgan.
We intend to commence the tender offer shortly, and this transaction is subject to customary
closing conditions, including applicable regulatory approvals. We expect to complete this
transaction in the first quarter of 2011.
As the title of slide 7 highlights, the combination with Dionex accelerates Thermo Fishers growth
opportunities and creates shareholder value by bringing complementary technologies, expanding our
customer base and markets and generating strong financial benefits.
So let me start with technology. This combination creates an incredible chromatography offering. It
brings together two highly complementary portfolios to provide the most extensive chromatography
instrument, software and consumables offering in the industry. Specifically, it combines Dionexs
ion and liquid chromatography instruments and consumables with Thermo Fishers existing
chromatography instruments and consumables.
This offering is even stronger when you combine it with our leading mass spectrometry platform. By
bringing together our deep applications expertise in mass spec with Dionexs chromatography
capabilities, Thermo Fisher will be able to deliver exceptional performance and productivity for
customers by helping them to improve sample analysis and data management.
When it comes to data management, you know we are the leader in laboratory information management
systems. By adding Dionexs gold standard chromatography data systems, we are creating a terrific
opportunity to grow by becoming the industry standard in software capabilities. This increases
laboratory efficiency for our customers and allows them to maximize their return on investment.
This transaction is also consistent with our focus on expanding in key growth markets. We will
benefit from Dionexs significant customer base and relationships in attractive and growing applied
markets such as environmental analysis, water testing, as well as food safety and other industrial
sectors. Through this combination, Thermo Fisher will be able to deliver unmatched analytical
solutions for a growing range of testing needs. In water analysis for example, growth is driven by
new regulatory requirements and increased testing in developing countries such as China. This
transaction is consistent with our strategy of investing to increase our footprint in growing Asian
markets.
You have heard me talk a lot about our recent initiatives in the Asia-Pacific region. To remind
you, we have established the headquarters for our global environmental instruments business there
within the past couple of years. We also continue to build our commercial infrastructure to meet
the needs of customers in growing water quality, consumer safety, and life sciences markets.
As I mentioned, Dionex currently generates more than 35% of its revenues in Asia-Pacific and other
emerging high-growth geographies, where it has a well-regarded direct sales and service presence.
Weve made great progress in the region and joining forces will enable us to serve this growth
market even better.
From a financial perspective, we expect this transaction to be immediately accretive to adjusted
EPS and will also accelerate our adjusted EPS growth rate. In addition, this transaction offers
significant opportunities for cost and revenue synergies, as well as tax efficiencies, which Pete
will discuss in a little bit more detail in a minute.
In summary, this deal is compelling from a technology, market and financial perspective, and that
all adds up to creating shareholder value.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference
Call
Let me tell you why I am so excited about the growth opportunities this represents. Slide 8
provides a quick snapshot of the leading technologies Dionex brings to the table and how these,
combined with our leadership in mass spectrometry instruments and software, gives us the
opportunity to accelerate growth.
As you probably know, Dionex has the leading market position in ion chromatography, which is the de
facto standard for water quality testing around the world. With its strong presence in other
high-growth applied markets such as environmental and food safety, this transaction allows us to
take our instrumentation offerings to an even broader customer base.
In liquid chromatography, Dionex has a complete portfolio of instruments that are all UHPLC-ready.
This is important, because it means these instruments can operate at both conventional pressures
and ultra-high pressure, which is a huge advantage for our customers. We are excited about this
offering because it creates the strongest technology portfolio in our industry, and when combined
with Thermo Fishers commercial presence, gives us a significant advantage in the marketplace.
Dionex has a great portfolio, it has done extremely well over the years, and combined with Thermo
Fishers scale and commercial breadth, we know this business has a very strong future.
Another exciting growth opportunity is software. Combining Dionexs gold standard performance in
chromatography data systems with our leading enterprisewide laboratory information management
systems significantly strengthens our software offerings, which is very compelling for our
customers.
Finally, you know us as the leader in mass spectrometry, and this transaction complements our
offering, adding Dionexs great front-end chromatography system to our mass spec platform. This
combination will enable us to create more integrated solutions for customers based on deep
applications expertise of both companies. We also look forward to increasing the market penetration
of our Triple Quad technology by serving Dionexs liquid chromatography customers.
For example, Dionexs unique high-throughput tandem UHPLC, coupled with our high-sensitivity Triple
Quad life science mass spec, will increase the speed and resolution of targeted analysis in
environmental labs. A couple great examples of this are the analysis of pesticides as well as
pharmaceuticals in water.
Now, I would like to turn the call over to Pete Wilver, our Chief Financial Officer, who will
discuss the financial details of this transaction. Pete?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
Thanks, Marc. Good morning everyone. I would like to start by saying how excited I am about this
transaction and the opportunities it provides to accelerate our growth.
As Marc has been describing, we think this deal provides significant financial benefits that will
create compelling shareholder value.
Turning to slide 9, this transaction is expected to generate approximately $60 million of total
operating synergies in the third year following the transactions close, with $15 million realized
in the first full year. This includes approximately $40 million from cost-related synergies, which
are expected to come from four primary drivers, as you can see on the slide reduced public
company costs, overhead and SG&A leverage, direct and indirect purchasing leverage and productivity
enhancements through our PPI and PPI Lean productivity programs.
This transaction is also expected to result in approximately $20 million of adjusted operating
income contribution from revenue-related synergies. We expect to achieve this by leveraging our
commercial reach to increase sales of Dionexs
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
chromatography instruments and consumables, and we are also excited about further penetrating
Dionexs complementary customer base with our leading mass spectrometry technologies.
In addition, we expect to benefit from greater tax efficiencies by leveraging Thermo Fishers
global structure.
In terms of the impact on Thermo Fishers earnings per share, this transaction is expected to be
accretive to our adjusted EPS by $0.13 to $0.15 in the first full year following the close.
In summary, we have a proven track record of integrating acquisitions and achieving our synergy
targets, so I am confident that we can achieve these goals.
Now I will turn the call back to Marc for some closing comments before we take your questions.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thanks, Pete. Turning now to slide 10, as we wrap up before Q&A, let me summarize the key points of
the call and why we are so enthusiastic about this transaction.
First, it is a highly complementary strategic fit. It significantly enhances our instruments,
software, consumables and services offering. It expands our presence in high-growth markets, and
financially, it is immediately accretive.
When you add it all up, this transaction accelerates our growth and creates significant shareholder
value for the long-term. This acquisition is consistent with the actions we have been focused on
all year investing in technology innovation, expanding in high-growth markets such as Asia, and
adding complementary acquisitions, all to strengthen our growth opportunities for the future.
With that, I would like to open up the call to questions. Operator?
QUESTIONS AND ANSWERS
Operator
(Operator Instructions). Quintin Lai, Robert W. Baird.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Good morning, Quintin. Quintin, we lost you.
Operator
Quintin Lai, your phone line is open. His question has been withdrawn. Ross Muken, Deutsche Bank.
Michael Cherny
Hey guys, its Mike here for Ross, and congratulations on the deal. So just to dive in a little bit
more on the LC side, can you just give us a little more color on Dionexs current market share in
both the US versus abroad, and then specifically what customer segments they have the greatest
position in?
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference
Call
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
You
know, in terms of specific market shares, we dont comment. But typically, you would see Dionex from a
chromatography perspective as the third-largest chromatography company globally, with great
strength in markets around the world. Probably on a relative basis, a higher share in Asia-Pacific
than others and if you look at it from that perspective.
Michael Cherny
Great. And then just quickly, Pete, you mentioned some of the tax efficiencies. How quickly do you
think you guys can get started on working those tax efficiencies, in addition to the synergy
targets you laid out?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
Well, we would expect those to kick in relatively quickly, so pretty much as soon as we can fold
Dionex into our global structure. So that would begin happening in the first full year.
Michael Cherny
Awesome. Congratulations again.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thank you.
Operator
Quintin Lai, Robert W. Baird.
Quintin Lai - Robert W. Baird Analyst
Hey, Im sorry about that. I apologize. Did anyone ask what is the right now, what you think the
overlap is in terms of the products that you and Dionex have?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
This is an incredibly complementary acquisition, if you think about it. First of all, Dionex has an
impeccable reputation in chromatography. We are a leader in both laboratory information management
systems and mass spec. These technologies are used together, and that makes it very, very much a
complementary acquisition.
When you look purely at the chromatography area, Thermo Fisher has strength in gas chromatography,
which is additive to Dionexs portfolio. And in things like liquid chromatography, only about half
of our mass specs today use our liquid chromatograph, so it is a great opportunity to have better
penetration in terms of liquid chromatography as well.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference
Call
Quintin Lai - Robert W. Baird Analyst
And then with respect to the cost of the debt, Pete, any first thoughts of what that might come out
at for modeling purposes, when you were doing the accretion?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
Well, certainly, it would depend on what the financing rates are when we finally finance the deal,
and it would depend on the tender. But we are looking at something in the range of 3% to 3.5%
interest cost.
Quintin Lai - Robert W. Baird Analyst
Thank you. Congratulations on the deal.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thank
you, Quintin.
Operator
Jon Wood, Jefferies.
Jon Wood - Jefferies & Company Analyst
Thanks a lot. Hey, Marc, can you just talk about what percent or what proportion of your mass spec
unit placements where an LC is also sold at the same time, and kind of anything you can offer
around the preponderance of Dionexs LCs with your mass specs in the field?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So really effectively, 100% of our mass specs are sold with an LC, in terms of how the customers
buy. And about 50% of them today come with a Thermo Scientific chromatograph, and about 50% come
from other companies, of which Dionex has some of those, but over time, will have a higher share of
that mix.
Jon Wood - Jefferies & Company Analyst
Okay, great. And then for Pete, should we assume any change in your buyback plans as a result of
this transaction? So I know you have kind of reauthorized another $750 million. Just give us some
thoughts around how this transaction impacts the timing of that buyback.
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
Well, I think there is not really a change in our previous guidance, which is that you should
expect the remaining authorization to be executed upon pro rata over the remaining period, which
ends in September of 2011.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation
Conference Call
Jon Wood - Jefferies & Company Analyst
Okay, great. Thanks a lot.
Operator
Marshall Urist, Morgan Stanley.
Marshall Urist - Morgan Stanley Analyst
Hey, guys, good morning. First question was just on the revenue synergy assumptions, I just wanted
to understand kind of what underlies that in terms of the magnitude of the revenue benefit, and
then what kind of incremental profitability were you guys assuming to get to the $20 million.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So Marshall, assume roughly a $50 million worth of revenue synergies, kind of ballpark, which
translates at a 40% rate to the 20. That is the rough math on that, in year three.
And it comes from two big drivers, obviously, as Pete was outlining. Dionex has a terrific set of
technologies, and obviously, Thermo Fisher has extensive commercial reach around the world. And
putting those technologies and leveraging the commercial reach of Thermo Fisher will accelerate
growth for our chromatography business.
And then Dionex has a terrific customer base for their chromatographs, and we believe we will be
able to expand our mass spectrometry offering by tapping into that customer base and the strong
presence that they have. So those are the two types of synergies that you would see. And then
obviously, we will have better solutions as we develop products and integrated solutions and
putting them together.
Marshall Urist - Morgan Stanley Analyst
Great. That makes sense. And then last one is just if you can just talk about timing here, and then
also how you guys thought about the deal from a return on capital perspective, and the hurdle that
you thought about and the numbers to kind of get there. Thanks.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So in terms of timing perspective and then Im going to turn it over to Pete in terms of
timing perspective, we are expecting this transaction will close in the first quarter of 2011.
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
And as far as the return, weve talked in the past about the three criteria for acquisitions, which
are that they strengthen our offering from a customer perspective, strengthen our strategic
position and, most importantly, create shoulder value. And this transaction clearly checks all
three of those boxes.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation
Conference Call
Marshall Urist - Morgan Stanley Analyst
Okay, great. Thanks for the questions.
Operator
Amit Bhalla, Citi.
Valerie Dixon
Hi. Good morning. Actually, it is Valerie in for Amit. Congrats on the transaction. First, I wanted
to understand this environmental end market opportunity. How big is this market opportunity for you
guys, and how does the addition of Dionex add to that? If you can give just a sense of what youre
thinking in terms of market shares and market size. And then as a follow-up, how are you thinking
about the management roles?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Sure. So the environmental market is a significant market for us. In fact, Thermo Fisher covers it
from two different perspectives. We have a dedicated environmental instruments business, which is
actually headquartered globally, based out of Shanghai. And we also have a number of our other
products that are used in environmental applications. So many, many, many hundreds of millions of
dollars for us in terms of environmental applications.
Dionex is the standard in water testing, their ion chromatography system. So if water testing is
done, it is typically done on a Dionex ion chromatography system, which means that there is great
opportunities to sell more of the Thermo Fisher products to that base. So very significant market
opportunity from our perspective.
And having spent a lot of time in China and other parts of the world, there is a huge need for
environmental improvement. So I think that is a market with great tailwinds.
In terms of the combination, and from a management perspective, you know, this is a very
complementary acquisition and very much focused on growth. So we look forward to welcoming the
Dionex team to Thermo Fisher. It is a great group of employees and it will be great to have those
as part of our team.
Valerie Dixon
Thank you.
Operator
Doug Schenkel, Cowen and Company.
Doug Schenkel - Cowen and Company Analyst
Hi, good morning and congrats on the deal.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation
Conference Call
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Thanks, Doug.
Doug Schenkel - Cowen and Company Analyst
So youve previously indicated in the context of talking about M&A criteria that you guys would be
willing, I believe, to go up to something like 3 to 3.5 times debt to EBITDA for the right
strategic rationale. Subsequent to this deal, you are going to be pretty far short of that, meaning
I still think there is some dry powder.
What is the right way to think about your M&A strategy from here? And I guess what I mean by that
is given the integration effort that is going to be associated with Dionex, is it fair to assume
that you are going to pull back a little bit or is that not a good assumption?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Yes, you know, thanks for the question. This acquisition is very much consistent with the capital
deployment strategy that we have outlined, which is a balance of strategic M&A to strengthen the
strategic position of the Company and create long-term value, as well as some return of capital
through, primarily, buybacks.
And this year, I think we are all very pleased that we have committed for this year and into next
year over $4 billion of commitments in terms of a combination of M&A and buybacks.
In terms of the ability to do things going forward, obviously, while this is a meaningful
transaction, it folds into a single business within our Company, which is our scientific
instruments business. So this is a very straightforward integration in terms of focusing on
maximizing growth.
So if other opportunities are meaningful in terms of improving shareholder value and strengthening
the Company strategically and from a customer perspective, we will look at them, but we are always
extremely selective and very disciplined about following our criteria.
Doug Schenkel - Cowen and Company Analyst
Okay, thanks for that. And one quick follow-up. Any chance you would comment on how this evolved,
whether there was a competitive situation or not?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
You know, in terms of how this came all about, the companies have known each other for many years.
In fact, we have had a long-standing commercial relationship between the companies, and we have
thought over the years about the benefits of this transaction, and the dialogue really picked up
this fall.
Doug Schenkel - Cowen and Company Analyst
Great. Thanks for taking the questions.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation
Conference Call
Operator
Tycho Peterson, JPMorgan.
Tycho Peterson - JPMorgan Analyst
Hey, good morning. You know, given, I guess, the [com lines] that you have laid out here, can you
just comment on how you are looking at FTC review and do you expect, I guess, a second request? And
if you could also just touch on post the deal, how you are thinking about your own legacy line of
LC systems, that would be helpful too.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Sure.
So Tycho, we are anticipating the transaction is going to close in the first quarter. In terms of
the combination of the chromatography systems, we see this as an incredibly complementary fit, and
that when you put the portfolios together, it is even a greater strength for the customers. There
is very, very, very little, if any, overlap between the products, so we dont see much.
Tycho Peterson - JPMorgan Analyst
Okay. And then just from a branding perspective, will you keep the Dionex brand or, I mean,
anything you could add on that front?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Sure. So the Dionex Company name at the time of the merger will go away, but Dionex will become an
important a very important product brand within the Thermo Scientific range. So it is obviously
very well-respected in the marketplace, and we are very much happy to have that become part of our
family going forward.
Tycho Peterson - JPMorgan Analyst
Great. Thank you very much.
Operator
Peter Lawson, Mizuho Securities.
Peter Lawson - Mizuho Securities Analyst
Marc, I just wondered if you could clarify a point. For the deal, that is accretive for 2011 is
that versus Street numbers or internal projections?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
This is Pete. It is accretive against either, because it is against either case, it would be
accretive. We are adding in a significant amount of value and earnings based on the transaction. Of
course, how it impacts 2011 will depend on at what date we close.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
Peter Lawson - Mizuho Securities Analyst
And that range captures that closing date, as opposed to the synergies?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
No, it doesnt. It doesnt capture the timing. It is just the range of operating results. The
timing will be just defined based on when we close.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So the
way that we plan on doing this Peter, is we will give our guidance for 2011, I think it is the
first week of February, roughly. And if the transaction has closed at that point, we will put it in
the guidance. If the transaction hasnt closed then we will, subsequent to the closing of the
transaction, give the exact guidance. So it will basically be this range, just and reduced by
whatever the number of months have passed in the year. So that is the unknown, exactly when it is
going to close in 2011.
Peter Lawson - Mizuho Securities Analyst
Perfect.
Thank you. Just thinking about salesforce integration, though, Dionex has got a very
strong presence in Asia, how are you thinking about that salesforce?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
You know, we just announced our integration leaders, and we have terrific people that will be
working on this from both companies in terms of how to maximize the growth potential. So it is a
little bit early for us to speculate on that.
Peter Lawson - Mizuho Securities Analyst
Perfect. Thank you so much.
Operator
Sung Ji Nam, Gleacher & Company.
Sung Ji Nam - Gleacher & Company Analyst
Hi, thanks for taking the questions. Just one quick one. Do you think there could be upside to
synergies, and if so will it be more likely coming from costs or from revenue synergies?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So, I am very proud of the track record we have in terms of being disciplined on M&A and then
delivering on the synergy targets that we have. And when we look back at Thermo Fisher, we achieved
those targets. When we look back at things like B.R.A.H.M.S. and Ahura, those integrations are
right on track. And we are excited about delivering $60 million of synergies in year three and $15
million in the first year.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
Operator
Dan Leonard, Leerink Swann.
Dan Leonard - Leerink Swann Analyst
Thank you. My first question, the tax efficiencies you outlined, are those in addition to the
synergy target, and can you quantify them?
Pete Wilver - Thermo Fisher Scientific, Inc. SVP, CFO
Yes, they are in addition to the $60 million of synergies. So in terms of quantification, if you
look at Dionexs tax rate, they are in the low 30s; Thermo Fisher is in the low 20s. So we would
expect over time to get Dionexs tax rate closer to Thermo Fishers tax rate over time. And as I
said, it pretty much happens in the first year.
In terms of quantification of the accretion in the first year, it is probably three quarters from
operating synergies and maybe a quarter from tax.
Dan Leonard - Leerink Swann Analyst
Okay. And then as far as the channel is concerned, how many of Dionexs customer relationships,
qualitatively, would you say are really incremental to Thermo Fisher, as opposed to relationships
you already had, and you now have another product to sell to those folks?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So, you know, given our incredible depth of capabilities, we probably have some relationship with
many of Dionexs customers, but it might be a small relationship, where ion chromatography and
liquid chromatography is a very important decision. So while the truly incremental new customers
might be small, the relationship in environmental testing and water testing, Dionex adds a lot to
the combined entity. That segment is a real strength of Dionex and a real growth opportunity for
Thermo Fisher.
Dan Leonard - Leerink Swann Analyst
Okay, thank you.
Operator
Derik De Bruin, UBS.
Derik De Bruin - UBS Analyst
Hi, good morning. So one of the strengths of Dionex is they have Chromeleon, which is a very strong
chromatography data system. And correct me if I am wrong, but I dont think you guys have one.
And also, could you talk about how many how do you see kind of leveraging Chromeleon? I mean,
how many how widespread is it in the industry? Does it operate other peoples HPLC systems and
UPLC systems? I am just curious on just where you can get some of the to see if that is one of
your revenue drivers, synergy drivers.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
So in terms of Chromeleon, it is the gold standard in the industry. It is incredibly
well-respected. And we see that as an opportunity, given our strength in the informatics business
generally, to be able to help accelerate the penetration of Chromeleon. The product is fantastic;
it has done very well under Dionexs stewardship. And we just have a number of customers that have
standardized on our LIMS platform that we can help open the door. So from that perspective, we
think it is really a very, very exciting combination.
Derik De Bruin - UBS Analyst
And just one final question. I guess when you look at ion chromatography, while it does have a big
push in the food and environmental markets, it is also making a big push into biologic
characterization. Is that you know, is there opportunities there as well for you?
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Yes, I do think that is also a real opportunity in terms of the strength of the companies from an
applications perspective.
Derik De Bruin - UBS Analyst
Great, thanks.
Operator
That was our final question. I will turn the floor back over to management for closing remarks.
Marc Casper - Thermo Fisher Scientific, Inc. President, CEO
Great. So I would like to thank everyone for joining us this morning. As you can tell, we are very
excited about this transaction. It is very much focused on creating long-term shareholder value,
and we are looking forward to updating you when we have our first-quarter conference call early in
February.
Frank Witney - Thermo Fisher Scientific, Inc. SVP, CFO
Thank you.
Operator
This concludes todays conference call. You may now disconnect.
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FINAL TRANSCRIPT
Dec. 13. 2010 / 1:30PM, TMO Thermo Fisher Scientific to Acquire Dionex Corporation Conference Call
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