Charles River buys WuXi PharmaTech in $1.6 billion deal

Pharmaceutical research company Charles River pays $1.6 billion in cash and stock to acquire Chinese outsourcing company WuXi PharmaTech two-and-a-half years after its listing in the US.

Charles River Laboratories International, a provider of research models and associated services of preclinical drug development, is to buy US-listed Chinese drug research and development outsourcing company Wuxi PharmaTech in a $1.6 billion cash and stock deal.

The new company will retain the name Charles River and offer an expanded portfolio of products and outsourcing services to multinational pharmaceutical, biotechnology and medical device companies, and to academic and government institutions.

James Foster, chairman, president and chief executive officer of US-based Charles River, will lead the combined company while Ge Li, chairman and CEO of WuXi, will become corporate executive vice-president and president of global discovery and China services, which is a new reporting segment. Li and two other WuXi directors will join Charles River's board of directors.

WuXi shareholders will receive the equivalent of $21.25 per American depositary share (ADS), payable $11.25 in cash and $10.00 in Charles River common stock. The amount of stock will be determined by an exchange ratio based on a formula. WuXi's shares closed at $16.57 on the New York Stock Exchange on Friday. The acquisition price represents a 52% premium to WuXi's initial public offering price of $14 some two-and-a-half years ago.  

Charles River expects to achieve pre-tax cost savings and synergies of approximately $20 million annually, beginning in 2011. The US company also said the deal will be neutral to slightly accretive to 2011 earnings per share and increasingly accretive thereafter.

Charles River will finance the cash portion of the transaction through cash on hand and new debt. It has secured a commitment for a $1.25 billion credit facility from J.P. Morgan Chase and Bank of America Merrill Lynch.

WuXi is a pharmaceutical, biotechnology and medical device R&D outsourcing company, with operations in China and the United States. It raised more than $200 million through a very successful IPO in the US in August 2007, which was led by J.P. Morgan and Credit Suisse. J.P. Morgan flips to the buy side for the M&A deal, acting as financial adviser to Charles River. Davis Polk & Wardwell is the legal adviser to the US company. Credit Suisse continues to work with WuXi as financial adviser with Cravath Swaine & Moore and O'Melveny & Myers providing legal advice.

"This is the first time that a leading Chinese healthcare company has combined with an international leading player to create a truly global leader," said Brian Gu, head of Greater China corporate finance and mergers and acquisitions at J.P. Morgan. It is a very significant transaction for China's healthcare industry; 2010 is shaping up to be an active M&A year for China, and we are starting to see significant strategic and investor interest in the healthcare sector, Gu added.

Charles River is a 150-year old company, based in Wilmington in Massachusetts. Its customers are pharmaceutical and biotechnology companies, as well as government agencies and academic institutions globally.

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