Charles River Laboratories International Inc. (NYSE:CRL) didn’t let disappointing first-quarter results slow it down, inking a $1.6 billion cash-and-stock deal to acquire Shanghai-based WuXi PharmaTech (Cayman) Inc. (NYSE:WX).
The Winchester, Mass.-based contract research organization said it will keep flying the Charles River banner and trade under its CRL ticker as it boosts its offerings to cover drug development from molecule creation to first-in-human testing.
CRL chairman, president and CEO James Foster will continue to man the helm, with WuXi chairman and CEO Ge Li serving as corporate executive vice president and president of a newly created global discovery and China services. Li and two other WuXi directors will join CRL’s board of directors. The deal represents a 28 percent premium on WuXi’s closing price April 23 of $16.57 and a 38 percent premium on the 30-day average closing price of $15.45.
The merger, expected to close by the fourth quarter, calls for CRL to pay $21.25 per WuXi American depositary share (each of which is worth eight ordinary WuXi shares). Each WuXi ADS share will get $11.25 in cash and $10 worth of CRL’s common stock as determined by an exchange ratio based on the weighted average Charles River common stock closing price for the 20-day trading period ending on the second business day prior to closing. If that price is $43.1726 or better, the exchange ratio will be 0.2316; if that price is equal to or less than $37.1486, the exchange ratio will be 0.2692.
Charles River Labs plans to fund the merger using cash on hand and new debt financing, including a $1.25 billion credit line from J.P. Morgan Chase and Bank of America Merrill Lynch. CRL said it expects the deal to generate pre-tax savings of about $20 million annually, beginning next year, as it consolidates the two companies operations. Revenues are expected to get a boost from the expanded product and services portfolio and more opportunities to sell "upstream and downstream to the client base," according to a press release.
That’s good news for CRL, which saw sales slip 1.4 percent during the three months ended March 27, to $297.3 million from $301.5 million during Q1 2009. Net income plunged 31.6 percent to $17.4 million, or 26 cents per diluted share, compared with $25.4 million, or 38 cents per diluted share, during the same period last year.
WuXi posted net income of $52.9 million, or 9 cents per diluted share, on sales of $270 million last year, according to a filing with the federal Securities & Exchange Commission.