Medical Device Link.

A definitive agreement between Beckman Coulter (Fullerton, CA) and Olympus Corp. (Tokyo) under which Beckman will acquire the diagnostic systems portion of Olympus’s life sciences business has been entered into for 77.45 billion yen, or approximately $800 million. The planned divestment of Olympus’s diagnostic systems business to Beckman Coulter encompasses the entire business. Beckman has agreed to acquire the research and development, production, and marketing functions of Olympus’s diagnostic business both in Japan and international markets.

According to Beckman Coulter officials, this acquisition will broaden Beckman’s chemistry offering, establishing a leadership position with particular strength in larger hospital laboratories. In addition, the transaction will extend Beckman Coulter’s broad chemistry customer base representing a valuable new customer set for Beckman’s immunoassay products.

“I would characterize this acquisition as furthering what has been our number one strategic objective during the past few years, which is to leverage our chemistry base to grow our immunoassay business,” says Allan Harris, director of corporate strategy at Beckman Coulter. “In terms of the strategic rationale at the highest level, that is point one. Immunoassays have contributed to 40% of our growth, and the formula for that has been very clearly selling to chemistry customers that increasingly want the same vendor for chemistry and immunoassay. The acquisition does some other nice things for us as well. It gives us a better product fit in Europe and Asia on the chemistry side, and certainly better scale in those markets. In addition to those major themes, the acquisition extends our reach in the chemistry market to the ultra-high-throughput segment.”

In 2010, the Olympus diagnostics business is anticipated to increase Beckman Coulter’s revenue by approximately $500 million on a full-year basis and generate approximately $40 million to $50 million in operating income. Beckman Coulter believes that a 2010 pretax savings of $50 million to $60 million can be achieved by combining Olympus’s operating expenses of about $200 million and Beckman’s operating expenses of more than $1 billion. Savings are expected to be realized from leveraging existing global infrastructure and integrating sales, service, administrative, and R&D activities.

“We’ve identified the only significant near-term facilities for consolidation to be in the immunoassay business, mostly Olympus’s facilities in Ireland,” says Harris. “The attrition will also come from back-office functions so there will be some consolidation there. In addition, we’ve said we would reduce the head count in sales because there’s overlap in various geographies as related to the sales forces. We’ll end up taking the best of both sales organizations, and getting a better consolidated and slightly smaller organization overall.

“But one of the most attractive things to us about this acquisition is the minimal degree of overlap, especially as it relates to the served markets,” continues Harris. “If you look at the U.S. market, we are serving principally the moderate- to high-volume hospital customers, and they’re serving the very high to ultra-high-throughput and principally commercial lab customers. So there’s very little overlap in that sense. And then geographically, we have a much smaller share of chemistry in Europe and Asia, whereas about 50% of their revenue comes from Europe and 20% from Asia. They are much stronger outside the U.S., we’re much stronger in the U.S., and where there is overlap, we’re typically lower from a volume segment service standpoint.”

As part of the agreement, Beckman Coulter has the right to deliver up to 37.5% of the purchase price in the form of Beckman stock. Correspondingly, Beckman Coulter expects to finance the acquisition with a combination of newly issued Beckman common stock (approximately $300 million) and newly issued debt (approximately $500 million). Under the intended conservative financing structure, Beckman Coulter does not anticipate a change in its current investment-grade ratings.

“We took a conservative approach to financing this acquisition,” says Harris. “We’re using debt to the extent that we can. But we have made a concerted effort to maintain our triple B rating with the ratings agencies since it’s very difficult to find credit at all if you don’t do that these days. We’re also supplementing that debt with a judicious use of equity, so we’ll be issuing about $300 million in stock. That’s the formula that works for us at this point in time.”