Fisher Hooks Up with CMS

Fisher Scientific's announcement last month that it plans to purchase the laboratory supplies division of Fisons PLC continues the trend of consolidation in the distribution industry. The combined company will have sales of approximately $2 billion, making it the largest distributor focused on laboratory services and supplies and the only one that is heavily involved in both industrial and clinical diagnostics.

Fisher has been the leading distributor of laboratory equipment to the industrial marketplace, which accounts for most of its $1.1 billion in sales. Fisons' laboratory business, on the other hand, is focused mostly on clinical diagnostics. Its US subsidiary, Curtin Matheson Scientific, is the second largest clinical diagnostics distributor in the US; its European industrial diagnostics business, which is also part of the deal, is much smaller.

Fisher's decision to consolidate its stronghold on the laboratory sector contradicts the belief common among health care executives that breadth of product and services across different specialties will be crucial for winning in the evolving marketplace. But the merger has the potential to strengthen both companies within the specialized sectors in which they operate. There are opportunities for consolidation in manufacturing and distribution infrastructure; some of the product lines overlap and can be sold to both markets.

For CMS, it means joining up with a parent company which is focused on the laboratory rather than broad-based health care. This could enhance the company's value to customers, particularly if it can capitalize on the synergies and lower its infrastructure costs. That would enable it to offer new services at highly competitive prices; the impact would be less on product prices, which are already at bottom.

It doesn't hurt that Fisher got the properties at bargain prices. It is paying $310 million in cash, or 40 cents on the dollar, for the businesses, which had combined 1994 sales of $750 million; CMS accounts for $650 million of that figure. In contrast, VWR earlier this year paid nearly 90 cents on the dollar to acquire Baxter's industrial diagnostics business.

As for Fisons, it could use the cash, either to attract a friendly suitor to rebuff a hostile takeover bid by Rhone-Poulenc Rorer, or, in the unlikely event it remains independent, to help develop its pharmaceuticals business, on which it says it wants to concentrate.