Charles River Laboratories International Galapagos Transaction Update

Charles River Laboratories International, Inc.

On March 13 Charles River announced the acquisition of Galapagos NV’s CRO services businesses: Argenta and BioFocus.

To finance the acquisition, Charles River used a combination of cash and debt from its existing euro-denominated revolving credit facility. As a result, we estimate 2014 interest expense will increase by $2.8 million, to $9.6 million.

CRL trades at 19.4 times current 2014 EPS estimated of $3.15, which is well above its five-year average of 14.0 times (range 10 to 19 times) but well below the CRO group average of 23.8 times. We are pleased by signs of improvement in early-stage drug development and encouraged by this addition to CRL’s portfolio. However, the historically high valuation and ongoing pressure on the core model business give us pause.

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