Life Technologies: bids under microscope Should the highest price always win? If so, the board of Life Technologies will have little trouble picking a winner in the auction for the $11bn science test equipment maker. The remaining bidders are, reportedly, a consortium of private equity firms and Thermo Fisher Scientific, the $30bn scientific equipment company. The leveraged buyout group is said to have bid $65 per share; Thermo, as much as $70. As it operates in the same industry, Thermo can hope to earn attractive returns while still paying more than a private equity buyer by harvesting cost synergies. Thermo, from an earnings perspective, would prefer to pay in cash. Its price to earnings ratio is 15 times; a bid at $70 implies a ratio of 16 times for Life. An all-share deal would thus be dilutive to earnings per share. With debt prices at record lows, on the other hand, accretion would be all but certain in an all-cash transaction. With an all-cash bid, however, Thermo would be left with debt of more than five times cash flow, untenable for a public company. If the deal was done half in shares, that ratio would fall below four. That would still threaten Thermo's investment-grade rating but borrowings could be paid down quickly as synergies were realised. This would leave the Life board deciding if an offer about 8 per cent higher is worth the risk of being paid in shares that could sink in value before or immediately after the deal is closed. Naturally, there is upside potential too. Since Thermo's $11bn merger with Fisher Scientific in 2006, its stock is up 70 per cent, well ahead of the S&P 500. Of course, Life could be using Thermo as a "stalking horse." That is, using its interest to pump up the all-cash bid from private equity. Private equity could still come in slightly short of the final Thermo bid - but better than if Thermo had never been at the table.