Two of Silicon Valley's biggest and most storied companies — Agilent Technologies of Santa Clara and Palo Alto-based Varian — are poised to combine under a $1.5 billion deal announced today.
If the marriage is approved as is expected by the end of the year, it would create a scientific equipment powerhouse. It also has created a buzz among industry experts who wonder if it means more tech company mergers and acquisitions could be in the offing, said Richard Eastman, a senior research analyst with the financial services firm Robert W. Baird & Co.
"People are looking at it from that vantage point," he said. "It suggests at least that maybe activity is starting to pick up."
Under the agreement, which must be approved by Varian's shareholders, Agilent has agreed to pay $52 in cash per share of Varian's common stock. That represents a 35 percent premium over the value of Varian's stock price at the close of trading Friday.
Agilent racked up nearly $5.8 billion in revenue during its 2008 fiscal year, making it the 16th-biggest Silicon Valley company, according to the Mercury News analysis of local corporate finances.
Spun off from Hewlett-Packard in 1999, Agilent makes devices used for everything from electronic warfare and drug development to the testing of cell phones and food. It is a leading supplier of instruments used to analyze the composition of air, water, industrial materials and forensic evidence, and has been involved in testing Olympic athletes for banned substances since 1972.
Varian, the 53rd-largest Silicon Valley company, with $1 billion in 2008 fiscal-year revenue, makes scientific instruments and other equipment for life science, energy, environmental and other types of research. Originally part of Varian Associates, which was founded in San Carlos in 1948, it was spun off as a separate company in 1999.
Two other companies were spun off from Varian Associates that same year. Varian Medical Systems of Palo Alto makes hardware and software used in cancer treatment, and is Silicon Valley's 33rd-biggest business. Varian Semiconductor Equipment Associates of Gloucester, Mass., makes equipment used to manufacture integrated circuits. Neither company is part of the Agilent-Varian deal.
Agilent and Varian executives declined to be interviewed and would not discuss whether the deal would lead to layoffs, as is often the case.
Since December, Agilent has announced 3,800 job cuts in response to the global economic downturn. It now has about 19,000 employees, with about 1,400 in Santa Clara, according to company spokeswoman Amy Flores.
Varian employs about 3,600, though the company does not reveal the size of its Bay Area work force.
"This acquisition is a major step in Agilent's transformation into a leading bioanalytical measurement company," Bill Sullivan, Agilent's president and CEO, said in a prepared statement. "While we continue to be a world leader in electronic measurement, our biggest opportunities for future growth are in bioanalytical measurement. ... The combination of Varian with Agilent's bioanalytical measurement business will result in the broadest product offering in the industry."
Garry Rogerson, Varian's chairman and CEO, was similarly upbeat.
"We also anticipate that the combination will yield strong benefits for our customers and employees," he said in the same statement.
As of last year, about 60 percent of Agilent's business was focused on electronic measurement, a legacy of its many years under Hewlett-Packard's oversight; electronic test equipment was HP's primary focus for its first few decades. Bioanalytical measurement accounted for the rest of Agilent's business. But in an interview then with the Mercury News, Sullivan said he was pushing his company into the $17 billion-a-year market for life-science equipment.
Even if Agilent and Varian combine, the new entity would be overshadowed by scientific instruments company Thermo Fisher Scientific of Waltham, Mass., which boasted sales last year of about $10.5 billion. Nonetheless, the combination would turn Agilent into a sizable industry force, said analyst Eastman.
"It certainly makes sense," he said. "It kind of vaults them into a leadership role in analytical instruments."
Although Agilent and Varian make some similar products, Eastman said he didn't think the overlap would trigger significant antitrust concerns from U.S. regulators.
In a note to its clients, investment bank Thomas Weisel Partners said the $1.5 billion purchase price for Varian "is attractively valued." But it warned that "the closing of the acquisition would shift Agilent to a net debt position for the first time as a public company, increasing the risk profile of the company."
The announcement of the proposed merger bolstered both companies' stock. Varian's share price rose $11.41, a jump of nearly 30 percent, to $50.61. Agilent's shares rose 39 cents to $22.66.
