Description
The sum-of-the-parts are worth more than the whole.
Sybron International (SYB) has two divisions: Apogent Technologies and Dental Products. Apogent manufactures consumable and labor saving tools in a variety of research and clinical functions worldwide. These products include bottles, beakers, flasks, microscope slides, diagnostic rapid tests (like “e.p.t” the pregnancy test kit), etc. Apogent has significant market share in the markets they compete which include biotech/pharma R&D, general research institutions, hospitals and laboratories. Apogent’s customers are primarily OEMs (i.e., Abbott Labs, Roche, Warner Lambert) and distributors (such Fisher Scientific, and VWR). What will drive growth in this division will be genomics. As a basic supplier of consumable research products Apogent is well positioned to capitalize on the genomics revolution. Apogent generates significant cash flow and has steady and predictable earnings. Internal growth has been in the neighborhood of 5-6%, and 20%+ including acquisitions. Frank Jellinek, a hard charging manager who has a proven record of generating shareholder value, runs this division. Apogent competes with Millipore (MIL), Becton Dickinson (BDX), etc..
The Dental Products division manufactures professional dental products such as filling materials, bonding agents, dental burs, impression materials; orthodontic materials such as brackets, band, etc.. They also make infection control products such as sterilizers and disinfectants. Approximately, 90% of revenues are derived from single-use consumable products. Very strong brands (ask your local dentists about the brands “Kerr” and “Ormco”). The Dental Products division has leading market share in orthodontics (31%) and competes with Dentsply (XRAY), witch has 18%. In dentistry however, XRAY in #1 followed by Sybron’s Kerr product.
Valuation: SYB is trading at 8x EV/EBITDA and 17x P/E for 20001. Reasonable comps for Apogent are trading at 15-17x EV/EBITDA and 25x P/E and 9x EV/EBITDA and 19x P/E for the Dental business. On a sum-of-the-parts basis, SYB is worth at least $35-$40 per share, generating a 52% upside potential based on SYB’s current price.
Quick background: SYB blew up in the 3rdQ because of inventory problems with a major customer. I believe the OEM and distributor related problems that plagued SYB’s lab business have been corrected. At the board level, the company is run by highly incented members including Thomas Hicks of the LBO shop Hicks, Muse and Robert Hass; they are also significant shareholders.
Catalyst
There are three primary catalysts:
1) SYB will be doing a tax-free spin-off of the dental business.
2) Potential asset sales: Apogent may be selling some of its slow growing businesses.
3) The break-up will unleash the talents of Frank Jellinek