Additional Financial and Transaction Details
Based on the anticipated completion of the acquisition by the end of the first quarter, Cognate is expected to add approximately $110 million to Charles River’s 2021 consolidated revenue for the partial year. The transaction is expected to be neutral to non-GAAP earnings per share in 2021, and accretive thereafter. Items excluded from non-GAAP earnings per share are expected to include all acquisition-related costs, which primarily include amortization of intangible assets, advisory fees, certain costs associated with efficiency initiatives, and certain third-party integration costs.
The acquisition and associated fees are expected to be financed through Charles River’s existing credit facility and cash. The Company is evaluating further optimizing its debt structure which could be used to finance the acquisition and for general corporate purposes.
Cognate is expected to be reported as part of Charles River’s Manufacturing Support segment.
Advisors and Cognate Ownership
Gordon Dyal & Co., LLC is acting as the exclusive financial advisor to Charles River. Davis Polk & Wardwell LLP is acting as Charles River’s transactional legal counsel, and Weil, Gotshal & Manges LLP is acting as antitrust counsel. Dark Horse Consulting Group, Inc. is acting as Charles River’s strategic advisor.
Cognate is supported by its majority shareholder, EW Healthcare Partners, as well as minority shareholders, Medivate Partners, BlackRock, and a sovereign wealth fund. Morgan Stanley & Co. LLC is acting as the exclusive financial advisor and Kirkland & Ellis LLP is acting as legal counsel to Cognate and its shareholders.
Use of Non-GAAP Financial Measures
This news release contains non-GAAP financial measures, such as non-GAAP earnings per diluted share, which exclude the amortization of intangible assets, integration costs, advisory fees, and other charges related to our acquisitions and expenses associated with evaluating acquisitions. We exclude these items from the non-GAAP financial measures because they are outside our normal operations. There are limitations in using non-GAAP financial measures, as they are not prepared in accordance with generally accepted accounting principles, and may be different than non-GAAP financial measures used by other companies. In particular, we believe that the inclusion of supplementary non-GAAP financial measures in this news release helps investors to gain a meaningful understanding of our core operating results and future prospects without the effect of these often-one-time charges, and is consistent with how management measures and forecasts the Company's performance, especially when comparing such results to prior periods or forecasts. We believe that the financial impact of our acquisitions (and in certain cases, the evaluation of such acquisitions, whether or not ultimately consummated) is often large relative to our overall financial performance, which can adversely affect the comparability of our results on a period-to-period basis. In addition, certain activities, such as business acquisitions, happen irregularly and the underlying costs associated with such activities do not recur on a consistent basis. Non-GAAP results also allow investors to compare the Company’s operations against the financial results of other companies in the industry who similarly provide non-GAAP results. The non-GAAP financial measures included in this news release are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The Company intends to continue to periodically assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations. A reconciliation of the effect of this transaction on non-GAAP earnings per share for 2021 to the most directly comparable GAAP financial measure has not been included because it is impracticable to determine the allocation of the purchase price for the proposed acquisition and other necessary adjustments at this time.
Caution Concerning Forward-Looking Statements
This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “will,” “may,” “estimate,” “plan,” “outlook,” and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking statements include statements in this news release regarding the acquisition of Cognate BioServices, expectations regarding the timing of the closing of the acquisition, and Charles River’s expectations with respect to the impact of Cognate on the Company, its product and service offerings, client perception, revenue, revenue growth rates, and earnings per share; Charles River’s projected future performance including revenue and earnings per share; as well as Charles River’s future growth in the area of cell and gene therapy CDMO services. Forward-looking statements are based on Charles River’s current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. Those risks and uncertainties include, but are not limited to, the ability to successfully complete the acquisition of Cognate, our ability to successfully integrate Cognate, and risks and uncertainties associated with Cognate’s products and services which are in areas in which Charles River does not currently operate. A further description of these risks, uncertainties, and other matters can be found in the Risk Factors detailed in Charles River's Annual Report on Form 10-K as filed on February 11, 2020 and the Quarterly Report on Form 10-Q as filed on October 29, 2020, as well as other filings we make with the Securities and Exchange Commission. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by Charles River, and Charles River assumes no obligation and expressly disclaims any duty to update information contained in this news release except as required by law.
About Charles River
Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them. To learn more about our unique portfolio and breadth of services, visit www.criver.com.
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Corporate Vice President, Investor Relations
Corporate Vice President, Public Relations
Source: Charles River Laboratories International, Inc.