This deal isn't as large as the merger of Guidant into Boston Scientific. But at about $10.6 billion, it's still pretty big. And it is perhaps one of the largest consolidations ever in the laboratory equipment and services sector.

Thermo Electron (Waltham, Massachusetts) and Fisher Scientific International (Hampton, New Hampshire) late Sunday reported that their boards approved a merger of the two companies that will create a super blockbuster-style manufacturer of equipment and services for laboratories and health science researchers. It will occur as a tax-free, stock-for-stock exchange.

To be named Thermo Fisher Scientific, the combined company will be headquartered in Waltham and will continue to have an office in Hampton. The positioning of the HQ appears to make Thermo the acquirer in the transaction, though Thermo had half the sales of its larger competitor, about $2.6 billion vs. Fisher's $5.6 billion.

In a Monday morning conference call, Paul Meister, vice chairman of the board for Fisher, emphasized the "transformational" character of the deal. He used the term to emphasize the combined company's ability to provide "integrated, end-to-end technical solutions" to the life science and drug discovery markets and "to better meet market needs more completely, more quickly and more cost-effectively."

In terms of drug discovery, he noted the need to accelerate the development of new drugs at less cost, and that the merged organization would now be better positioned to support this goal.

Besides predicting the roll-out of new products, he said Thermo Fisher will have the financial resources to growth through acquisitions. Given the various synergies predicted, the combination is projected to produce more than $9 billion in sales in 2007.

Fisher's strengths are in biochemicals, nutrients for growing cells, glassware and sterile liquid-handling systems. Thermo claims a leading position in providing analytical instruments, with a concentration on advanced measuring instruments such as spectrometers used for chemical and protein analysis.

While there is overlap, the companies emphasized the complementary nature of their offerings and said that by combining these, Thermo Fisher will be able to offer an increased number of integrated and "end-to-end" solutions to the laboratory and research sectors.

The combined company will be able to field a global sales and service organization of nearly 7,500 professionals.

Fisher shareholders will receive 2 shares of Thermo common stock for each share of Fisher common stock they own. Based on Thermo's closing price of $39.45 per share on May 5 this represents a value of $78.90 per Fisher share, or an aggregate equity value of $10.6 billion, not including net debt of $2.2 billion.

Upon completion of the transaction, Thermo's shareholders will own about 39% of the combined company, and Fisher shareholders would own about 61%.

Marijn Dekkers, president and CEO of Thermo, will become president and CEO of the combined company; Meister will become chairman of the board.

Following close of the transaction, Paul Montrone, chairman and CEO of Fisher, will be stepping aside in support of the new management team. He will be concentrating on launching new business opportunities and will remain an adviser to the company. Jim Manzi, chairman of the board of Thermo, will serve on the board of the combined company.

"This combination brings together two well-respected industry leaders in the life, laboratory and health sciences marketplace to create a company that has the product breadth, global reach and operational expertise to drive significant value for shareholders, customers and employees," said Dekkers. "Both Thermo and Fisher have strong track records of acquisition success and margin expansion. By combining our companies' complementary world-class product and service offerings with Fisher's unparalleled customer access, we expect to accelerate growth by further penetrating our vast customer base."

Montrone said, "For more than 100 years, Fisher has played an important role in aiding scientific discovery. Our focus on supplying innovative product and service solutions has enabled our 350,000 customers to concentrate on what they do best – improving health and extending life. Thermo has an equally solid record, and the combined company will be well-positioned to deliver accelerated earnings growth for shareholders."

Meister added: "The upside potential we see as a result of our combination is compelling. By leveraging the operating expertise at both companies, we anticipate realizing the strategic and financial benefits of this transaction quickly and efficiently."

Thermo expects 2007 adjusted earnings-per-share of the combined company to be in the range of $2.27 to $2.37, reflecting accretion of about 18% to Thermo's consensus 2007 adjusted EPS. The merger accelerates revenue growth and is expected to result in a 20% compound annual growth rate in adjusted EPS over three years.

The transaction is expected to generate $200 million of cost and revenue-related synergies in three years, with 2007 synergies expected to be at least $75 million.

• $150 million of cost-related synergies, excluding one-time costs, are expected to result primarily from manufacturing rationalization, sourcing and logistics efficiencies, and shared administrative functions.

• $50 million of revenue-related synergies are expected to result from cross-selling opportunities, enhanced geographic reach, penetration of new and existing markets, and new solutions development.

Operating cash flow is expected to be in excess of $1 billion in 2007. In addition, the Thermo Electron board has increased the current authorization of its buyback program to $300 million.

The transaction is subject to approval by both companies' shareholders as well as customary closing conditions and regulatory approvals. The transaction is expected to close in the fourth quarter of 2006.

Lehman Brothers and Rothschild are acting as financial advisers to Thermo, and Wachtell, Lipton, Rosen & Katz is legal counsel. Goldman, Sachs & Co. and Lazard Freres & Co. are acting as financial advisers to Fisher, and Skadden, Arps, Slate, Meagher & Flom is legal counsel.