Charles River in buyout

Charles River Laboratories International Inc., best known for supplying rodents for medical research, is buying a North Carolina company for $1.5 billion that expands its business into testing drugs in humans.

Under the cash and stock terms, Charles River, of Wilmington, will acquire Inveresk Research Group Inc. of Cary, N.C. -- by far the largest deal for Charles River after a string of smaller purchases. All were meant to increase the scope of services Charles River could offer its pharmaceutical and biotechnology clients, such as testing to make sure drugs aren't toxic before human clinical trials begin.

But many of these clients wanted even larger research partners, said Charles River chief executive James C. Foster, in an interview. For instance, some companies want to test drugs on both sides of the Atlantic to satisfy US and European regulators. As a historically Scottish company, Inveresk owns the European operations Charles River lacks.

So far, Foster said, Charles River's toxicology testing unit ''has been a quality player, but a second-tier player, and I wanted it to be the first-tier player."

The purchase, which still needs shareholder and regulatory approvals, also reduces Charles River's dependence on its lab animal business, a slow-growing sector. Lately, it has been promoting more specialized animals for research such as rats bred to grow obese for diabetes investigations, but last year more than half its $613.7 million revenue came from other services it sells. Meanwhile, Inveresk, had revenue of $272.4 million in 2003 and turned a $38 million profit after several years of losses.

Inveresk develops tests to examine the composition and safety of drugs, among other operations. It also runs human clinical trials of drugs both before and after they are approved for market.

Some on Wall Street raised concerns that Charles River may be biting off more than it can chew. ''Combining the Inveresk" and Charles River operations ''now does introduce a significant distraction at a time when customer demand is high, customer focus is paramount" and Charles River's business ''was just beginning to deliver a cohesive message," wrote Jefferies & Co. analyst David H. Windley in a research note. Windley downgraded both Charles River and Inveresk to ''hold" from ''buy" yesterday.

Paul R. Knight, a stock analyst who follows the company at Thomas Weisel Partners, said Charles River shareholders should be concerned about the volatility in Inveresk's business, which has fluctuated in some of its segments.

Knight said he is maintaining his buy rating on the company's shares, however, since the deal brings Charles River into new business areas that might someday replace its animal models, such as testing drugs through computer simulations.

Under the agreement, shareholders of Inveresk will receive roughly half a share of Charles River and $15.15 in cash for each share they own in the North Carolina company.

Those terms value Inveresk's stock at $38.61 per share as of Wednesday evening, a 25 percent premium over its close that day. Charles River shareholders will wind up with 73 percent of the resulting company, and Inveresk shareholders will have 27 percent.

Shares in Inveresk rose $4.35 to close at $35.19 in trading yesterday. The drop in Charles River's shares reflected the high price it is paying. Analysts surveyed by Thomson First Call had expected Charles River to earn $2.09 per share in 2005 and $2.28 in 2006.

In a joint press release yesterday, the companies said after the merger Charles River expects to earn between $1.75 to $1.85 in 2005, and between $2.33 to $2.43 in 2006.

The deal will still require approvals from shareholders of both companies, and regulatory approvals such as antitrust reviews that could force Charles River to sell off some pieces of the combined business.

On the conference call with analysts, Foster said he doesn't anticipate having to do so. ''There are so many players in this business and the way our businesses are arranged geographically and where our strengths are and what Inveresk strengths are, I think we are very much complementary and not very duplicative."

Founded in Scotland by chief executive Walter Nimmo in 1988, Inveresk moved its headquarters to North Carolina in 2002. Scottish press reports at the time suggested Inveresk was concerned about protests by animal-rights activists in the United Kingdom, which had been growing against the company and had already disrupted others.

An outside spokesman for Inveresk, Jonathan Birt, said the company only wanted to put its headquarters at the center of the world's largest drug market and closer to American research centers.

Foster said Nimmo now will fill Charles River's position of chief scientific officer, vacant for two years. By 2006, the two companies expect to have cut $20 million in costs, he said, mostly from synergies such as combined purchasing clout and merged dealings with drug regulators.

The company has no current plans to close facilities, Foster said, declining to elaborate. Combined, the company will have more than 7,300 employees spread over 97 locations in 20 countries.

Ross Kerber can be reached at kerber@globe.com.