* Agilent says deal will expand bioanalytical business
* Price for Varian represents 35 percent premium
* Analyst sees 5 cent to 10 cent EPS boost in first year
* Agilent shares close nearly 2 pct higher.
(Adds analyst comment, changes dateline, bylines)
By Clare Baldwin and Sue Kelly
SAN FRANCISCO/CHICAGO, July 27 Agilent
Technologies Inc (A.N) said it will buy Varian Inc VARI.O for
$1.5 billion in cash to bolster its fast-growing bioanalytical
Agilent, which makes electronic testing equipment, said it
will pay $52 a share, which is a 35 percent premium to Varian's
closing share price on Friday. The boards of both sides have
approved the deal, the companies said on Monday.
The shares of Varian rose 29 percent to close at $50.61 on
the Nasdaq. Varian specializes in instruments to measure
biological and physical properties.
The shares of Sequenom Inc SQNM.O, which makes genetic
analysis products, rose nearly 14 percent on speculation it
might also become a takeover target.
Agilent shares rose 1.75 percent to close at $22.66 on the
New York Stock Exchange, reflecting the view of analysts that
the price was fair and that the takeover would help earnings.
Analysts said Agilent has long wanted to expand its
bioanalytical measurement business, which accounted for about
46 percent of revenue in the second quarter. The segment has a
higher profit margin and is a more stable business than the
increasingly commoditized electronic measurement business that
now accounts for more than half of Agilent's revenue.
The acquisition of Varian will bump bioanalytical
measurement to about 55 percent of Agilent's revenue and there
was room for cost cuts to boost profit growth. These two
factors justify the price, analysts said.
"The premium may appear big on the surface, but when you do
the math, the price being paid by Agilent for Varian really
brings Varian's valuation in line with the peer group," said
Robert W. Baird & Co analyst Richard Eastman. "I would put the
price paid in the fair category."
Eastman estimated Varian would add 5 cents to 10 cents per
share to Agilent's adjusted earnings in the first full year.
Agilent posted earnings of $1.87 per share in 2008 after
adjusting for special items and is forecast to post a 16 cent
loss in 2009, according to Reuters Estimates.
The company expects regulators to approve the deal before
the end of the year. Once completed, the transaction will
likely result in $75 million in annual savings, it said.
COST CUTTING OPPORTUNITIES
Agilent competes with PerkinElmer Inc (PKI.N), Thermo
Fisher Scientific Inc (TMO.N), Waters Corp (WAT.N), and Life
Technologies Corp (LIFE.O) in the bioanalytical business.
It said Varian can help Agilent expand product offerings in
the life sciences, environmental, energy and materials sectors,
and help it enter new markets, including nuclear magnetic
resonance imaging and atomic and molecular spectroscopy.
"While we continue to be a world leader in electronic
measurement, our biggest opportunities for future growth are in
bioanalytical measurement," Agilent Chief Executive Bill
Sullivan said in a statement.
Credit Suisse North America analyst William Stein said some
investors may have been worried Agilent's earnings were driven
by its bioanalytical measurement business, while revenue
depended on the struggling electronic measurement business.
"This deal pushes (Agilent) more in the direction of
permanently having both revenue and earnings higher from the
bioanalytics side," Stein added.
Varian, which had revenue of $1 billion in fiscal 2008,
reported fiscal third-quarter earnings on Monday that beat Wall
Street expectations, helped by a lower tax rate.
Isaac Ro, an analyst with Leerink Swann, said Agilent is
well known for using its scale to lower costs.
"We view this ($52-a-share) valuation as reasonable given
the ample cost-cutting opportunities available to (Agilent)
post-deal," Ro wrote in a note to clients.
(Reporting by Paul Thomasch in New York, Susan Kelly in
Chicago, Clare Baldwin in San Francisco and Shailesh Kuber in
Bangalore; editing by Tiffany Wu and Andre Grenon)