Major changes at the top analytical instrument companies continue to unfold. This month, Agilent Technologies, the second-largest analytical and life science instrument company (see IBO 4/15/13), announced that it will spin off its Electronic Measurement Group (EM), transforming it into a company dedicated to laboratory instrumentation. This follows the April announcement of the acquisition of Life Technologies, the fourth-largest analytical and life science instrument company, by Thermo Fisher Scientific (see IBO 4/15/13), the largest analytical and life science instrument company.

Although Agilent’s reorganization will not fundamentally change its analytical instrument businesses, it can be expected to create new opportunities for the company to unify and focus the resources of these businesses in regard to each other and Agilent’s relatively new diagnostics business. It is also expected to provide investors with a clearer financial profile that is more aligned with its peers in the laboratory instrument and healthcare sectors, allowing for a more accurate valuation of the company. “As you know very well, LDA [life sciences, diagnostics, applied markets] and EM investors have different investment criteria, timelines and valuation metrics. We believe that these differences have been a limiting factor on Agilent’s stock price appreciation and its valuation multiple,” stated Agilent President and CEO William Sullivan on the conference call discussing the announcement.

As Eric Endicott, Global Public Relations manager at Agilent, told IBO, “Agilent has evolved into two distinct investment and business opportunities, and we are creating two separate and strategically focused companies to allow both to maximize growth and success. As separate companies, the management of each will be able to focus on their own businesses and use their resources to grow in the marketplace.” The separation is expected to be completed by the end of calendar year 2014. “Once the separation is completed, the two companies will be able to implement growth strategies, business policies and practices uniquely suited to their individual markets and customer needs.”

The new Agilent is estimated to have fiscal 2013 revenues of $3.9 billion, an operating margin of 18% of revenues, and a return on invested capital of 11%. By business, Life Sciences will account for 42% of revenues, Chemical Analysis will represent 41%, and Genomics & Diagnostics will make up 17%. By geography, Asia-Pacific and the Americas will each make up 34% of revenues and Europe will account for 32%. Forty-one percent of revenues will be recurring. The company will have 11,500 employees.

A change instituted in conjunction with Agilent’s announcement is the merging of the company’s Life Sciences Group and its Diagnostics & Genomics business. “We are creating a new Agilent with a simplified structure that can move quickly to develop and deliver industry leading total workflow solutions for our customers,” commented Mr. Sullivan. This business is headed by Lars Holmkvist, previously president of the Diagnostics & Genomics Group and former CEO of Dako, the anatomic pathology and genomics diagnostics company Agilent purchased last year (see IBO 5/31/12). Agilent created the Diagnostics & Genomics Group following the acquisition.

As Mr. Endicott told IBO, “Agilent believes that combining these two groups will help us better serve our customers. Our goal is to offer solutions that span the entire customer workflow.” He added, “The two groups can work together as one to address human health and disease; target pharmaceutical, government and academic markets; and leverage genomics technologies.”

Another change already implemented in preparation for the spin-off is the establishment of a new Order Fulfillment organization. Created in fiscal 2012, the previous Order Fulfillment organization centralized order fulfillment and supply operations, including manufacturing, engineering, strategic sourcing and logistics, across all the businesses, according to the company’s fiscal 2013 annual report. To run the new organization, Agilent has named Henrik Ancher-Jensen president of Order Fulfillment and senior vice president of Agilent. Previously, he served as vice president of Global Product Supply for the Diagnostics & Genomics business and corporate vice president of Global Operations at Dako. Gooi Soon Chai, senior vice president of order fulfillment and supply chain, will join the EM spin-off.

Agilent stated on the conference call that it will focus on minimizing the “dis-synergies” of splitting the company. Such dis-synergies are expected to total around $100 million over three years. The primary area of dis-synergies is anticipated to be the shared infrastructure organization, which includes functions such as information technology and payroll. Agilent commented on the call that there is little overlap in real estate, besides sales offices, and no enterprise resource planning systems overlap between new Agilent and EM. Most of the separation of the information technology, real estate and corporate infrastructure is expected to be completed by the middle of next year, according to the conference call. The fiscal 2013 annual report stated that Agilent’s global infrastructure organization includes finance, legal, workplace services, human resources and information technology services.

Asked on the conference call about possible manufacturing dis-synergies, Mr. Sullivan stated, “At this point in time, given the progress we have made of establishing Panang[, Malaysia] as the largest manufacturing site in the new Agilent going forward, we believe the manufacturing dis-synergies will be minimal.” The Panang site employs New Product Introduction Teams to engineer products cost effectively, as part of the company’s continued focus on increasing operating margins to greater than 20% of revenues.

The shared infrastructure also includes Agilent’s Research Laboratories, which in the new Agilent will be divided between the Chemical Analysis business and the Life Sciences, Genomics & Diagnostics business. Mr. Sullivan stated that he expects the alignment with each business to drive efficiency and the development of differentiated products.