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Will Thermo Fisher's (TMO) Failed QIAGEN Deal Cost it a Lot?
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The market was in for a surprise as Thermo Fisher Scientific's (TMO - Free Report) $13-billion colossal plan of acquiring Germany-based molecular diagnostic major QIAGEN N.V. (QGEN - Free Report) fell through. Per the company’s release, the deal fell apart as QIAGEN shareholders overwhelmingly rejected the tender offer.
Shares of Thermo Fisher dropped 0.7% on Aug 14, the day after the news surfaced.
Only 47.02% of QIAGEN’s issued and outstanding ordinary shares were validly tendered into the acquisition offer by the end of the acceptance period (Aug 10). This remained significantly below the minimum acceptance threshold level of 60% to the offer.
Following this development, QIAGEN will pay Thermo Fisher an expense reimbursement payment of $95 million.
Not All is Lost for Thermo Fisher
Although the initial response of Thermo Fisher investors was not encouraging, later on shares rose on the company’s solid organic growth trajectory amid the COVID-19 pandemic. It has already witnessed significant gains through crisis-related noteworthy contributions.
In the last-reported quarter, the company registered 11% organic sales growth. This was based on approximately $1.3 billion of COVID-19 revenue tailwinds, reflecting nearly 21% growth, largely driven by testing-related kits and instruments. Not only this, the company is currently confident of consistent organic growth through the rest of the year. For the third quarter, the company expects approximately $1.1 billion of COVID-19 related revenues, which would translate to nearly 18% of growth.
The tailwinds are significantly stronger than what the company had originally expected back in March, driven by the speed at which Thermo Fisher has been able to ramp up its response and extend the relevant offerings to its customers. The company currently expects strong growth in healthcare market channel, clinical diagnostics and microbiology businesses.
Meanwhile, if the launch of COVID-19 therapeutics and vaccines is successful (Thermo Fisher is currently working on more than 200 related projects globally), analysts expect a more meaningful impact in 2021-2022.
Inorganic Growth Prospects Remains Bright Too
As part of its strategy to effectively deploy capital, Thermo Fisher made several acquisitions and went for strategic alliances in the past. On top of boosting revenues, these deals have historically benefited the company’s operating margin while also resulting in tax synergies.
Immediately after the QIAGEN deal fell through, the company came up with a new companion diagnostic partnership with Hengrui Therapeutics, a U.S. subsidiary of China-based pharmaceutical company, Jiangsu Hengrui Medicine Co., Ltd., to develop a CDx. This will be used to identify non-small cell lung cancer (NSCLC) patients who may be eligible for pyrotinib, Jiangsu Hengrui’s novel, irreversible pan-HER2 tyrosine kinase inhibitor. Per the terms of the agreement, Thermo Fisher will retain rights to commercialize the test globally and will seek approval from regulatory agencies.
Shareholders’ Return Remains Impressive
In spite of the aggressive inorganic growth strategy, the company’s debt to capital remains at a moderate level of around 40% over the past five years, indicating strong capital deployment strategy. This is all the more impressive, given the fact that in these few years, EPS of the company moved up by as much as 62%. Over these years, the company has witnessed 26.4% growth in return on equity.
Our Take
Last month, Thermo Fisher went ahead and increased its original offer price of €39.00 to €43.00 per QIAGEN share in cash, which represented a premium of approximately 35% to the closing price of QIAGEN’s ordinary shares on the Frankfurt Prime Standard on Mar 2 (the deal commencement day). This amendment was particularly because of QIAGEN’s growing business prospect around COVID-19 related healthcare opportunities.
However, QIAGEN shareholders were of the view that this amended deal price too is not sufficient to justify the company’s record progress in the first half of 2020. We note that the company reported a significant 16% revenue growth in the second quarter and came up with a strong outlook for 2021.
The fact that Thermo Fisher has not further amended its offer is indicative of the company’s confidence in its organic growth prospects.
Zacks Rank
Thermo Fisher currently carries a Zacks Rank #2 (Buy). It has a long-term earnings growth rate of 15%.
PerkinElmer reported second-quarter 2020 adjusted EPS of $1.57, surpassing the Zacks Consensus Estimate by 68.8%. Revenues of $811.7 million outpaced the consensus mark by 1.3%. The company presently sports a Zacks Rank #1.
Hologic’s (HOLX - Free Report) long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.
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Will Thermo Fisher's (TMO) Failed QIAGEN Deal Cost it a Lot?
The market was in for a surprise as Thermo Fisher Scientific's (TMO - Free Report) $13-billion colossal plan of acquiring Germany-based molecular diagnostic major QIAGEN N.V. (QGEN - Free Report) fell through. Per the company’s release, the deal fell apart as QIAGEN shareholders overwhelmingly rejected the tender offer.
Shares of Thermo Fisher dropped 0.7% on Aug 14, the day after the news surfaced.
Only 47.02% of QIAGEN’s issued and outstanding ordinary shares were validly tendered into the acquisition offer by the end of the acceptance period (Aug 10). This remained significantly below the minimum acceptance threshold level of 60% to the offer.
Following this development, QIAGEN will pay Thermo Fisher an expense reimbursement payment of $95 million.
Not All is Lost for Thermo Fisher
Although the initial response of Thermo Fisher investors was not encouraging, later on shares rose on the company’s solid organic growth trajectory amid the COVID-19 pandemic. It has already witnessed significant gains through crisis-related noteworthy contributions.
Thermo Fisher Scientific Inc. Price
Thermo Fisher Scientific Inc. price | Thermo Fisher Scientific Inc. Quote
In the last-reported quarter, the company registered 11% organic sales growth. This was based on approximately $1.3 billion of COVID-19 revenue tailwinds, reflecting nearly 21% growth, largely driven by testing-related kits and instruments. Not only this, the company is currently confident of consistent organic growth through the rest of the year. For the third quarter, the company expects approximately $1.1 billion of COVID-19 related revenues, which would translate to nearly 18% of growth.
The tailwinds are significantly stronger than what the company had originally expected back in March, driven by the speed at which Thermo Fisher has been able to ramp up its response and extend the relevant offerings to its customers. The company currently expects strong growth in healthcare market channel, clinical diagnostics and microbiology businesses.
Meanwhile, if the launch of COVID-19 therapeutics and vaccines is successful (Thermo Fisher is currently working on more than 200 related projects globally), analysts expect a more meaningful impact in 2021-2022.
Inorganic Growth Prospects Remains Bright Too
As part of its strategy to effectively deploy capital, Thermo Fisher made several acquisitions and went for strategic alliances in the past. On top of boosting revenues, these deals have historically benefited the company’s operating margin while also resulting in tax synergies.
QIAGEN N.V. Price
QIAGEN N.V. price | QIAGEN N.V. Quote
Immediately after the QIAGEN deal fell through, the company came up with a new companion diagnostic partnership with Hengrui Therapeutics, a U.S. subsidiary of China-based pharmaceutical company, Jiangsu Hengrui Medicine Co., Ltd., to develop a CDx. This will be used to identify non-small cell lung cancer (NSCLC) patients who may be eligible for pyrotinib, Jiangsu Hengrui’s novel, irreversible pan-HER2 tyrosine kinase inhibitor. Per the terms of the agreement, Thermo Fisher will retain rights to commercialize the test globally and will seek approval from regulatory agencies.
Shareholders’ Return Remains Impressive
In spite of the aggressive inorganic growth strategy, the company’s debt to capital remains at a moderate level of around 40% over the past five years, indicating strong capital deployment strategy. This is all the more impressive, given the fact that in these few years, EPS of the company moved up by as much as 62%. Over these years, the company has witnessed 26.4% growth in return on equity.
Our Take
Last month, Thermo Fisher went ahead and increased its original offer price of €39.00 to €43.00 per QIAGEN share in cash, which represented a premium of approximately 35% to the closing price of QIAGEN’s ordinary shares on the Frankfurt Prime Standard on Mar 2 (the deal commencement day). This amendment was particularly because of QIAGEN’s growing business prospect around COVID-19 related healthcare opportunities.
However, QIAGEN shareholders were of the view that this amended deal price too is not sufficient to justify the company’s record progress in the first half of 2020. We note that the company reported a significant 16% revenue growth in the second quarter and came up with a strong outlook for 2021.
The fact that Thermo Fisher has not further amended its offer is indicative of the company’s confidence in its organic growth prospects.
Zacks Rank
Thermo Fisher currently carries a Zacks Rank #2 (Buy). It has a long-term earnings growth rate of 15%.
QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1. (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Key Picks
PerkinElmer reported second-quarter 2020 adjusted EPS of $1.57, surpassing the Zacks Consensus Estimate by 68.8%. Revenues of $811.7 million outpaced the consensus mark by 1.3%. The company presently sports a Zacks Rank #1.
Hologic’s (HOLX - Free Report) long-term earnings growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>