Germany’s Merck KGaA is going down the chemicals route rather than pharmaceuticals to drive future growth and is splashing out $6 billion in cash (plus debt) to buy US laboratory equipment specialist Millipore Corp.
Under the terms of the deal, Merck will acquire all outstanding shares of common stock of Millipore, for $107 per share in cash, valuing the transaction including net debt at $ 7.2 billion. The deal, which as been approved by both boards of directors will create a $ 2.9 billion “world-class partner for the life science sector”, they claim. achieving significant scale in high-margin specialty products with an attractive growth profile.
Millipore provides what it calls “cutting-edge technologies, tools and services for bioscience research and biopharmaceutical manufacturing”. The deal comes after fellow US lab equipment maker Thermo Fischer Scientific was believed to have offered $6 billion and Merck’s offer represents a premium of 13% over Friday’s closing price for Millipore shares. Indeed the stock price has shot up over 50% since last Tuesday when Millipore revealed that it had hired Goldman Sachs to look at its strategic options.
Explaining why Merck has not gone for a pharmaceutical deal, chief executive Karl-Ludwig Kley noted that while its performance and life science chemicals unit “may not have been the focus of the financial markets”, it is “a very good and solid business serving attractive industries”. With this transaction, “we will now transform it into a world-class business”, he added, noting that “the state-of-the-art lab water solutions offered by Millipore will broaden our footprint in laboratories around the world” and “allow us to really move beyond chemicals and cover the entire value chain for pharma and biopharma customers”.
Dr Kley denied claims that Merck may have overpaid, saying that “we have thoroughly analysed Millipore and we know them very well from many years of being in the same industry. In fact we’ve been their customer for years”. He went on to say that the deal is “fully in line with our acquisition criteria and it is accretive to core EPS right away’.
Merck expects to achieve synergies of $100 million annually but Dr Kley insisted that the transaction “is not about cutting costs but about two world-class teams joining forces”. He expects to complete the deal in the second half of the year.
However Merck investors are bit concerned about how the acquistion will be financed, ie through available cash and a loan provided by Bank of America Merrill Lynch, BNP Paribas and Commerzbank. At 9.15 this morning (UK time), the Darmstadt-based group’s shares had dipped 0.5% to 57.50 euros.
