Agilent to buy Varian in all-cash deal; Aetna sale rumors surface; El Paso secures partner

By Stephanie N. Rotondo

Portland, Ore., July 27 - Agilent Technologies Inc. announced Monday it has inked a deal to acquire Varian Inc. in an all-cash transaction valued at $1.5 billion.

The company said the acquisition will allow it to increase its product offerings. However, one analyst said it remains unclear if the deal is worth it to Agilent.

Meanwhile, the rumor mill started cranking out buzz that Aetna Inc. is considering selling off its pharmacy benefit management unit. Though the company has not commented on the rumor, it did release its second-quarter results two days early.

El Paso Corp. said it has secured a 50% partner in its Ruby Pipeline project. The investment deal calls for the investor to put up as much as $700 million.

In the financial realm, First Niagara Financial Group Inc. is planning a $237 million all-stock acquisition of Harleysville National Corp. First Niagara hopes the addition of the bank will help its growth initiatives.

With the week just starting, the equities went on a ride. After much gyration, the Dow Jones Industrial Average managed to gain 15.35 points, or 0.17%, to close at 9,108.59, while the Standard & Poor's 500 index improved 2.92 points, or 0.30%, to 982.18. The Nasdaq Composite increased 1.93 points, or 0.10%, to 1,967.89.

Agilent to buy Varian

Agilent Technologies announced it entered into a definitive agreement to acquire Varian for $52.00 per share, representing an approximately 35% premium to Varian's closing price on Friday.

The deal is expected by Agilent to be accretive to its earnings on a non-GAAP basis in the first full year following the acquisition. The merger will allow Agilent to expand its product offerings in the life sciences, environmental and energy and materials sectors.

"This acquisition is a major step in Agilent's transformation into a leading bio-analytical measurement company," said Bill Sullivan, Agilent's president and chief executive officer, in a press release. "While we continue to be a world leader in electronic measurement, our biggest opportunities for future growth are in bio-analytical measurement.

"For more than 60 years, Varian has built rich talent, technology, products and relationships in this area," Sullivan added. "The combination of Varian with Agilent's bio-analytical measurement business will result in the broadest product offering in the industry."

"After thorough review together with our independent advisers, our board of directors determined that this transaction delivers excellent value for our shareholders," said Garry Rogerson, chairman and CEO of Varian, said in the release.

"We each bring expertise and experience across a different but complementary set of markets and applications," Rogerson said. "For instance, while Agilent is a leader in food safety, Varian is well established in the energy industry, and has a broad spectrum of products for environmental analysis. Together, the combined company will be able to provide customers with the most comprehensive set of solutions across a wider range of industries."

According to the company's news release, Agilent expects the purchase to result in $75 million in cost synergies. The company also hopes to achieve a 20% return on its investment within four to five years.

Still, it is not clear whether the deal makes sense for both parties, at least strategically speaking.

"The numbers probably make it accretive," an analyst said in an interview with Prospect News. "Strategically, it is not real clear."

Agilent's equity gained 35 cents, or 1.51%, to close at $22.62, while Varian's stock improved $11.34, or 28.93%, to $50.54.

Agilent is a Santa Clara, Calif.-based provider of scientific instruments used for analysis. Varian is a Palo Alto, Calif.-based supplier of scientific instruments and vacuum technologies for life science, environmental, energy and applied research and other applications.

Aetna sale rumored

The market was abuzz with talk that Hartford, Conn.-based health insurer Aetna is considering selling its pharmacy benefits management business.

The story was first reported in the Wall Street Journal, and other outlets soon followed.

The Journal cited sources familiar with the matter who said that the unit is being shopped to CVS Caremark Corp. and Medco Health Solutions Inc. The report went on to say that the proposed sale could have been decided after Wellpoint Inc. sold its NextRx pharmacy benefits management unit to Express Scripts Inc. for $4.68 billion in April.

"The price was well at the high end of the expected range," one analyst explained. Given such, other companies with pharmacy benefits management units might be seeing potential sales as a good opportunity.

But whether or not it would be favorable for Aetna to release its pharmacy benefits management division is not clear.

"It all depends on price," the analyst said, adding that he had no idea what a potential price might be. "We don't know how much it contributes to Aetna's earnings either. There are so many unknowns, it is really hard to speculate whether it would be a good deal or not."

Aetna's management did not comment on the news in its earnings conference call held Monday morning. The call and earnings release were moved up a few days as the company posted what it called "disappointing" results.

For the second quarter, Aetna reported net income per share of $0.77. The decline year over year was attributed to higher-then-expected commercial medical costs and medical benefit ratios.

In addition, Aetna revised its 2009 forecast to $2.75 to $2.90 per share.

"Our second quarter results do not meet our expectations or the standards we have established over several years of strong operational execution and financial performance," said Ronald A. Williams, chairman and CEO, in the earnings release. "We continue to see upward pressure on medical costs beyond what we projected in early June, which we believe is driven in part by changing provider behavior in the face of a deep recession. We did not fully capture the impact of these forces in our 2009 pricing. This is disappointing, but it can be fixed."

Also, during Monday's call, Williams said that the company has "already begun to implement the corrected actions necessary to achieve future growth with particular emphasis on our operating margins."

Aetna's shares dropped 80 cents, or 3.03%, to $25.71.

El Paso gets project partner

El Paso and Global Infrastructure Partners have agreed to a deal in which the latter will take a 50% interest in El Paso's Ruby Pipeline project.

Under the terms of the deal, Global Infrastructure Partners will invest $700 million into the project. Of those funds, $405 million will come as a 7% secured note, which will be convertible into preferred equity interest upon completion of the construction financing.

"We are pleased to have Global Infrastructure Partners join us in the Ruby project," Jim Cleary, president of El Paso's western pipelines, said in a statement. "We continue to make excellent progress on Ruby, and we look forward to it being one of the key assets in our pipeline franchise."

The partnership will allow El Paso to complete construction on the project, which is expected to cost up to $3 billion.

El Paso's stock gained 35 cents, or 0.49%, to close at $10.18.

El Paso is a Houston-based oil and natural gas company.

First Niagara wants Harleysville

First Niagara plans to acquire Harleysville National in a $237 million all-stock transaction.

Harleysville shareholders will receive 0.474 shares of First Niagara equity for each share held. The deal is valued at $5.50 per Harleysville share.

The Lockport, N.Y.-based company will in turn receive 3.15% market share in Pennsylvania with Harleysville's 140 branches located throughout the state.

Harleysville has $5.6 billion in assets, including $3.6 billion in loans and $4.1 billion in deposits.

"This move is a terrific next step in our strategy to leverage our strong capital position in markets with attractive demographics and long-term growth potential, where we can profitably play offense," John R. Koelmel, First Niagara's president and CEO, said in a news release. "The communities served by Harleysville are perfect complements to First Niagara's stable and resilient markets in Upstate New York and Western Pennsylvania."

The deal is expected to close in the first quarter of 2010 and is expected to be 14% accretive to First Niagara's earnings in 2010.

"We're very pleased to have found an acquirer with experience in dealing with the integration and cultural issues that come with any two companies combining their businesses," Paul D. Geraghty, Harleysville president and CEO, said in the release. "In First Niagara, we have a strong and profitable partner that will allow us to maintain our focus on community banking customers, while offering employees and investors attractive growth prospects."

First Niagara's shares increased 75 cents, or 6.39%, to $12.49. Harleysville's equity ended better by $1.52, or 38%, to $5.52.

Harleysville National is the holding company for Harleysville National Bank and Trust, East Penn Bank, Millennium Wealth Management and Cornerstone Cos. The company is based in Harleysville, Pa.

First Niagara is the holding company for First Niagara Bank.

Mentioned in this article:

Aetna Inc. NYSE: AET

Agilent Technologies Inc. NYSE: A

CVS Caremark Corp. NYSE: CVS

Medco Health Solutions Inc. NYSE: MHS

El Paso Corp. NYSE: EP

Express Scripts Inc. Nasdaq: ESRX

First Niagara Financial Group Inc. Nasdaq: FNFG

Harleysville National Corp. Nasdaq: HNBC

Varian Inc. Nasdaq: VARI

Wellpoint Inc. NYSE: WLP

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