Charles River Laboratories International, Inc. (NYSE: CRL), a leading global provider of research models and associated services and of preclinical drug development services, and WuXi PharmaTech (Cayman) Inc. (NYSE: WX), a leading drug research and development outsourcing company with expertise in discovery chemistry and with operations in China and the United States, today announced that they have signed a definitive agreement under which Charles River and WuXi will combine in a cash and stock transaction valued at approximately $1.6 billion.
The combined company, which will retain the name Charles River, will offer an expanded portfolio of products and outsourced services to multinational pharmaceutical, biotechnology and medical device companies and academic and government institutions who increasingly seek the flexibility to access high quality, early-stage drug development expertise from chemistry to man from one global company.
“This transaction revolutionizes the contract research landscape by creating the only global contract research organization, or CRO, to offer fully integrated research and drug development services from molecule creation to first-in-human testing,” said James C. Foster, Chairman, President and Chief Executive Officer of Charles River.
“We regard this as a transformational transaction that sets a new standard in the outsourced drug development services industry,” Mr. Foster continued. “For the first time, our existing and potential clients will be able to obtain support for their early-stage drug development needs from one company with unparalleled scientific depth and breadth in chemistry and biology. We will be a more valuable strategic partner to our clients by offering both upstream and downstream support for their efforts to bring new drugs to market. Further, we will be able to provide our integrated portfolio of products and services globally, affording clients the opportunity to work in the locale which suits them best: North America, Europe or China.”
Dr. Ge Li, Chairman and Chief Executive Officer of WuXi, said: “This combination represents a true win-win scenario that significantly expands the global reach and growth opportunities for both companies. As a result of this transaction, Charles River will be able to immediately expand its presence in China and avail itself of WuXi’s expertise in chemistry services, while simultaneously, WuXi will be in a position to accelerate its good laboratory practice (GLP) toxicology capabilities. Together, we will offer our clients unparalleled support to meet their early-stage drug development needs.”
Mr. Foster concluded, “We have tremendous respect for WuXi and its skilled team, who have built a market-leading company with a significant presence in China, a region many of our clients consider to be the new frontier for drug development. The combination of WuXi and Charles River brings together two companies with a shared mission: to support and accelerate our clients’ drug development efforts. Both companies’ corporate cultures share a commitment to scientific expertise, exceeding clients’ expectations, dedication to employees, and building a valuable enterprise for shareholders.”
Leadership and Integration
Mr. Foster will continue to lead the combined company and Dr. Li will become Corporate Executive Vice President and President of Global Discovery and China Services, which will be a new reporting segment for the Company. In addition, Dr. Li and two other WuXi directors will join the Board of Charles River. As soon as practicable, Charles River and WuXi will form a joint integration team to fully assess
the logistics of the combination and optimization of our resources.
As a result of the combination, Charles River expects to achieve pre-tax cost savings and synergies of approximately $20 million on an annualized basis, beginning in 2011, principally from consolidation of corporate infrastructure, as well as from operating efficiencies. The transaction is expected to be neutral to slightly accretive to 2011 earnings per share on a non- GAAP basis and increasingly accretive thereafter. Items excluded from non-GAAP results are expected to include all deal-related costs including amortization. Charles River also expects revenue growth to increase as a result of a broader portfolio of essential products and services, a larger global footprint and the opportunity to sell upstream and downstream to the client base.
Financial Terms of the Transaction
Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, the total consideration to be paid will be $21.25 per WuXi American Depositary Share (ADS), subject to the collar described below. Each WuXi ADS will be exchanged for $11.25 in cash and $10.00 of Charles River common stock determined by an exchange ratio. This exchange ratio will be determined by dividing $10.00 by the weighted average Charles River common stock closing price as reported on the New York Stock Exchange (NYSE) for the 20-day trading period ending on the second business day prior to closing (Charles River Average Price). However, if the Charles River Average Price is equal to or
greater than $43.1726, then the exchange ratio will be fixed at 0.2316, and if the Charles River Average Price is equal to or less than $37.1486, then the exchange ratio will be fixed at 0.2692.
Please note, each WuXi ADS trading on the NYSE represents eight (8) WuXi ordinary shares. Based on WuXi’s closing stock price of $16.57 on April 23, 2010, the transaction represents a premium to WuXi shareholders of 28%. Based on the 30-day average closing price of $15.45, the premium is 38%. The exchange of WuXi shares for cash and Charles River shares is expected to be taxable to WuXi’s shareholders under U.S. tax law. Charles River stock will continue to be listed on the NYSE under the symbol CRL.
Charles River intends to finance the cash portion of the transaction through balance sheet cash on hand and one or more sources of new debt financing. Charles River has received a financing commitment for a $1.25 billion credit facility from J.P. Morgan Chase and Bank of America Merrill Lynch.
Approvals and Time to Close
The transaction is subject to approval by each company’s stockholders and the satisfaction of customary closing conditions and regulatory approvals. Subject to the satisfaction of these conditions, the companies anticipate completing the transaction by the fourth quarter of 2010.
J.P. Morgan Securities Inc. is acting as financial advisor and Davis Polk & Wardwell LLP is acting as legal advisor to Charles River. Credit Suisse is acting as exclusive financial advisor and Cravath Swaine & Moore LLP and O’Melveny & Myers are acting as legal advisors to WuXi.