AR-News: Charles River Labs buys Inveresk -- The clinical animal testing company will pay $1.5 billion for the Scottish animal tester.

[Karen Dawn]

Daily Deal/The Deal

July 2, 2004 Friday

 M AND A; TechNews

 Charles River Labs buys Inveresk
 by Tara Croft


The clinical animal testing company will pay $1.5 billion for the Scottish
animal tester.




Extending its clinical animal testing business, Charles River Laboratories
International Inc. said Thursday, July 1, it would acquire Inveresk Research
Group Inc. for $1.5 billion.

Charles River, of Wilmington, Mass., breeds animals for testing by the
pharmaceuticals industry and has annual sales of $634 million. The company
primarily breeds rats with specific genetic and viral characteristics and
offers other preclinical services. Edinburgh, Scotland-based Inveresk
primarily does animal testing for the pharmaceuticals industry. It has
annual sales of $292 million.

"The new Charles River will be well positioned to provide essential products
and services spanning the drug research and development effort, from early
discovery through clinical trials," Charles River chairman, president and
CEO James C. Foster said in a statement. "The merger will enhance our
ability to serve our customers and accelerate their research efforts, while
improving our operating efficiency."

Inveresk shareholders will receive 0.48 Charles River common shares and
$15.15 in cash for each Inveresk share they own, for a total value of $38.61
per common share based on Charles River's closing stock price of $48.87 on
Wednesday. The offer values Inveresk stock at a 25% premium above
Wednesday's closing price of $30.84.

On Thursday, Inveresk stock shot up more than 23% to $38 after the deal was
announced, before settling to trading at just under $36 in the afternoon.

The boards of both companies have approved the cash-and-stock deal. Once its
shareholders approve the deal, Charles River said they would own roughly 73%
of the fully diluted shares of the company. Charles River expects the deal
to close in the fourth quarter.

Charles River stock fell more than 8.5% Thursday, trading around $44.68 in
the afternoon.

The price offered for Inveresk is viewed as fair to generous. "The valuation
for the business is well above anything they've gotten in the public
market," said Kemp Dolliver, a senior managing director of research at SG
Cowen who covers Inveresk. "There is some complementary nature to the
businesses in that Charles River had acquired some smaller toxicology
companies over the last two years and is mainly in the U.S. — where Inveresk
doesn't have toxicology operations." Inveresk's primary operations are in
Scotland and Canada.

Dolliver also doesn't foresee any other parties stepping up the stakes.
"It's a very full price," he said. "Other CROs [contract research
organizations] such as [Princeton, N.J.-based Covance Inc.] don't have the
financial capacity to top this offer."

Inveresk had its beginnings in Edinburgh in 1964, with its first
pharmacology and toxicology studies. The company began its clinical trials
operations in 1988.

Inveresk's largest stockholder, U.K. private equity firm Candover
Investments plc, already has earned a bonanza on its investment in Inveresk.
In September 1999, Candover invested $109.8 million in a leveraged buyout of
Inveresk, according to Securities and Exchange Commission filings. It
recouped $108.6 million of its investment in conjunction with Inveresk's
IPO, in June 2002.

Candover later reaped more than $304 million in cash selling down its stake.
It still owns between 9.6% and 11.2% of Inveresk, filings indicate.

Inveresk has been active in acquisitions. It bought ClinTrials Research Inc.
in 2001, before going public, and then acquired PharmaResearch Corp. in
2003. The company now has two preclinical facilities — one in Edinburgh and
the other in Montreal — and one clinical facility in Cary, N.C.

For the 13 weeks ended March 31, Inveresk's revenue increased 33% to $76.7
million. The company's net income increased 67% to $12.3 million. The
revenue hike reflects strong demand for preclinical services in Europe and
North America. The increased income also reflects lower share offering costs
and reduced interest expenses.

Charles River was founded 50 years ago and now has laboratories in 15
countries. In September 1999, a group of investors lead by Donaldson, Lufkin
& Jenrette Inc.'s private equity arm, now part of Credit Suisse First
Boston, acquired 87.5% of Charles River for $400 million and the assumption
of $43 million in debt from optical company Bausch & Lomb Inc.

Charles River went public in June 2000. In 2001 the ownership position of
DLJ Merchant Banking Partners was reduced to zero from its original 87.5%
and Bausch and Lomb also sold its entire remaining stake.

For the three months ended March 27, Charles River's sales rose 13% to
$172.6 million. The company's net income fell 9% to $17.6 million.

Charles River has been an active acquirer, too. After going public, the
company bought Pathology Associates International and Primedica in 2001. The
companies gave Charles River about $120 million in new revenue as well as
additional preclinical outsourced services.

In July 2001 Charles River bought Genetic Models Inc. of Indianapolis, the
leading provider of diabetic rat processes for biomedical research. And last
year Charles River bought DakDak Photoaging Technologies Inc. and its
patented in-vitro technology used to help cosmetic companies screen skin
care products.

Most recently, in January, Charles River announced that it has acquired
River Valley Farms, a privately held clinical research business located near
Minneapolis. River Valley Farms does cardiovascular device testing on
animals for medical tools makers.

If the Inveresk deal closes, Charles River expects to achieve pretax cost
savings and synergies of about $10 million in 2005 and another $10 million
in 2006.

Inveresk CEO Walter Nimmo will become vice chairman of the board and chief
scientific officer of Charles River. All senior management are expected to
remain. The combined company will have more than 7,300 employees in 97
locations in 20 countries.

CSFB was financial adviser to Charles River, and Davis Polk & Wardwell was
counsel. Goldman, Sachs & Co. was financial adviser to Inveresk, and
Clifford Chance was counsel.

— David Carey contributed to this report