Shares of San Diego-based Invitrogen Corp. fell 24 percent July 10 after the firm announced it would buy a major chemical company for $1.9 billion in a cash and stock deal.
Financial analysts, however, believe while investors didn’t see the benefits of the cash and stock deal then, they will in time.
“Investors were confused as to what was going on, but it’s actually fairly straightforward,” said Ronald C. Renaud, financial analyst at Hambrecht & Quist in New York.
Invitrogen stock fell 18 & #382; on July 10 to close at $58 3/8 after the deal was announced.
Company shares rose slightly, closing at $64.88 on July 11 and $63.87 on July 13.
Invitrogen, which makes gene research kits and other scientific research products, bought Connecticut.-based Dexter Corp. mainly to gain access to some 10,000 research products made by the firm’s Life Technologies unit.
Dexter owns 75 percent of Life Technologies, but also operates two additional units , Nonwovens, which Dexter agreed to sell for $275 million, and parts of Specialty Polymers, which Dexter agreed to sell for $400 million in cash, Renaud said.
Under the terms of the deal, Dexter will sell off all of its non-life science units (except for one).
Renaud expects the sale of these units will put back $325 million in Invitrogen’s pocket.
Under the terms of the deal, Invitrogen will buy all of Dexter’s outstanding stock for $62.50 a share, or about $1.5 billion, and all of Life Technologies’ common stock for $60 a share, or about $400 million.
That is excluding the shares held by Dexter.
Lew Shuster, COO at Invitrogen, said under the agreement there is a sliding scale between $60 and $80 a share.
“Investors will have a choice between cash and stock,” said Shuster. “If the stock price is within that range, the lower the price of the shares, the more shares we will offer. We offer fewer shares as the stock price goes up.”
Invitrogen estimated the combined company will have annual revenues of more than $500 million and about $100 million in operating cash flow.
This would catapult Invitrogen to the top of all local biotech firms in terms of revenues.
Renaud said the merger will make Invitrogen the largest player in the molecular biology reagent business.
“If you have a molecular biology laboratory, Invitrogen could be your one-stop shopping,” Renaud said.
Last year, scientists spent more than $1.6 billion on molecular biology products and supplies, such as chemicals, reagents, enzymes and research kits, according to Renaud.
A company official projected the acquisition to raise company’s earnings per share between 20 and 25 percent by 2001.
Renaud is more optimistic, forecasting an earnings per share increase by 30 percent for 2001, or between $1.20 in earnings per share and $1.25 in earnings per share.
Shuster said Invitrogen’s latest acquisition offers “strong opportunities.”
Life Technologies’ presence in the Far East opens the door for Invitrogen’s entry into an untapped market.
“Invitrogen has only a couple of distributors in Asia,” Shuster said. “Life Technologies has a major sales force in Japan and a broad network of subsidiaries.”
Renaud said Life Technologies’ 200 field representatives bring company products to 20,000 customers in academic and governmental institutions, as well as pharmaceutical and biotechnology firms.
So far, Invitrogen has a strong presence in Europe with its Netherlands-based subsidiary and distributors in Germany, France and the United Kingdom, Shuster said.
Invitrogen hopes to expand its 40-member worldwide sales force to 50 people by year-end, he said.
Under its ambitious business plan, Invitrogen strives to introduce several new products each month, he added.
In addition, Invitrogen will prop up its Web sites to sell products online and provide services to customers, Shuster said.
The proposed acquisition still needs to be approved by shareholders of Invitrogen, Dexter and Life Technologies.
Invitrogen expects all transactions, regulatory approval and approval by shareholders to be completed by the fall.
For now, Life Technologies will keep its name and remain a separate unit in Rockville, Md., Shuster said. Dexter will be closed and sold and its CEO Grahame Walker, will retire.
The buy boosts Invitrogen’s staff nearly five-fold, from 550 to 2,500 people, Shuster said.