DNEX Dionex Corp. (MM)

Thermo Fisher Scientific (TMO) will hold an Analyst Meeting on May 25, 2011 in New York. Members of the senior management team will discuss their expectations regarding the company’s future performance. Previously, the company had also shown its confidence of acquiring Dionex Corporation (DNEX).

Thermo Fisher moved a step ahead in this respect on receiving the recent approval from the European Commission for the proposed merger. In January, the company had received antitrust clearance in the US with respect to the acquisition.

Earlier, in December 2010, Thermo Fisher had decided to acquire California based Dionex, a leading manufacturer and marketer of chromatography systems for $118.50 per share or a total consideration of $2.1 billion. This acquisition promises $60 million of operating synergies in three years after the close of the transaction and would be accretive to the company’s bottom line by 13-15 cents within the first year of closing.

The acquisition of Dionex not only strengthens Thermo Fisher’s Analytical Technologies segment, but will also boost its presence in the Asia-Pacific region. The company will be able to target the attractive markets of environmental analysis, food safety and water testing. By combining the ion and liquid chromatography capabilities of Dionex with its existing chromatography offering, Thermo Fisher expects to create an industry-leading chromatography portfolio. This in turn will further strengthen its leading position in mass spectrometry business.

Dionex currently generates more than 35% of its revenues in Asia-Pacific and other emerging markets. This complements Thermo Fisher’s existing strategy of expanding in emerging markets like China, India, and Brazil. Within the Asian market, the company is focusing on China, as it is a haven for growth with heavy investments in multiple forms of energy production.

Thermo Fisher exited the first quarter with cash and cash equivalents of $2.8 billion compared with $917.1 million at the end of December 2010. A strong cash balance helps the company pursue suitable acquisitions or reward its shareholders through share buybacks. The company spent $538 million to buy back 9.6 million shares and was left with $700 million of authorization at quarter end. The company also sold two laboratory-testing services businesses – Athena Diagnostics and Lancaster Laboratories resulting in total proceeds of $940 million.

We are currently ‘Neutral’ on the stock.

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