The two companies recently settled litigation sparked by S&S selling its IsoCode product outside the scope of Whatman's license for FTA, a product for the collection, purification and storage of DNA. In the settlement, Whatman ended up buying S&S's portfolio in this area, a harbinger of the merger to come.
The combined group will consolidate its current market share, according to analysts at Cazenove. In LabSciences, Whatman's market share will grow from 11 per cent, ranking it third behind Millipore (35 per cent) and Pall (30 per cent) to 16 for Whatman/S&S. It will also stretch its lead over fourth place Sartorius, which holds 5 per cent of the market. In the medical field it will still rank fifth but expand its share from 4 to 6 per cent.
S&S's leading position in Germany gives Whatman a significant presence in Europe's largest economy and complements Whatman's own presence in the UK and elsewhere in the EU. The company also has a number of BioScience products - paper and membrane-based products used in diagnostics, pharmaceutical research laboratories using arraying technology and biomolecular research and routine testing - that are showing strong growth.
Foremost among these is S&S's protein microarray, which enables the rapid screening of proteins and identification of peptides, novel proteins and amino acid sequences. The protein microarray sector is growing rapidly as a result of the increased understanding of the involvement of proteins in disease, said Whatman.
And in the US, the enlarged group will benefit from S&S's presence in the US BioScience and MedTech sectors and that of Whatman in LabSciences, strengthening its overall presence.
Cazenove said the deal made good sense, allowing the companies to cross sell their products to existing customers, win new customers with an expanded product range, and possibly also improve the mix by shifting clients from S&S' lower-cost items - the analysts believe these are sold at a 15 per cent discount - to Whatman's higher priced ranges.
S&S revenues in 2003 were £33.9 million (€48.6m) - 45 per cent of Whatman's - while underlying earnings before interest and taxes (EBIT) was £3.3 million, adding 25 per cent to Whatman's EBIT, said the analysts.
Cost savings are also likely to be significant, coming mainly in manufacturing. The integration of S&S into Whatman is expected to give rise to cost synergies of £8 million by 2007, according to Whatman, with around 50 per cent and 80 per cent of the total being achieved in 2005 and 2006, respectively. The estimated cash cost of restructuring is approximately £10 million, which will be booked in 2004.