Merck KGaA to acquire Sigma-Aldrich for approximately $17 billion

Acquisition is intended in part to expand reach of Merck Millipore, increasing its presence in North America and gaining exposure to fast-growing Asian markets

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Editor’s note: We covered this story subsequently in the October 2014 issue of DDNews, both in the physical issue and the online versions. You can read that updated version of the story here.

DARMSTADT, Germany—Pledging to maintain a “significant presence” in St. Louis, Mo., and Billerica, Mass., and predicting that customers will benefit from a “broader offering of complementary products and capabilities and leading e-commerce platform in the industry,” German Big Pharma company Merck KGaA announced Sept. 22 that it has entered into a definitive agreement to acquire St. Louis-based Sigma-Aldrich for €13.1 billion (approximately $17 billion).
“This transaction marks a milestone on our transformation journey aimed at turning our three businesses into sustainable growth platforms,” said Karl-Ludwig Kley, chairman of Merck’s executive board. “For our life-science business it’s even more than that: It’s a quantum leap. In one of the world’s key industries, two companies that fit perfectly together have found each other to present a much broader product offering to our global customers in research, pharma and biopharma manufacturing and diagnostic and testing labs. As such, the combination of Merck and Sigma-Aldrich will secure stable growth and profitability in an industry that is driven by trends such as the globalization of research and manufacturing. What’s more, the combination gives us the possibility to invest even more in innovation going forward.”
Merck will acquire all of the outstanding shares of Sigma-Aldrich for $140 per share in cash. The agreed price represents a 37-percent premium to the latest closing price of $102.37 on Sept. 19, 2014, and a 36-percent premium to the one-month average closing price. The transaction is expected to be immediately accretive to Merck’s earnings before interest, taxes, depreciation and amortization before one-time items (EBITDA pre) margin. Merck expects to achieve annual synergies of approximately $340 million, which are expected to be fully realized within three years after closing.
“The combined company will be well-positioned to deliver significant customer benefits, including a broader, complementary range of products and capabilities, greater investment in breakthrough innovations, enhanced customer service, and a leading e-commerce and distribution platform in the industry,” noted Rakesh Sachdev, president and CEO of Sigma-Aldrich. “This transaction is a clear validation of our success in transforming Sigma-Aldrich into a customer-focused and solutions-oriented global organization. This is a testament to the strength of the Sigma-Aldrich brand and the accomplishments of our 9,000 employees worldwide. We believe this is a very positive outcome for our shareholders, who will receive a significant premium, and our employees, who will benefit from enhanced opportunities as part of a larger, more global organization.”
According to Merck, the combined company will be able to serve life-science customers around the world with a highly attractive set of established brands and an efficient supply chain that can support the delivery of more than 300,000 products.
“In the Laboratory & Academia business, together Merck Millipore and Sigma-Aldrich will offer their customers a complementary range of products across laboratory chemicals, biologics and reagents,” the German company notes. “In pharma and biopharma production, Sigma-Aldrich will complement Merck Millipore’s existing products and capabilities with additions along the entire value chain of drug production and validation.”
Merck asserts that it has successfully integrated a number of life-science businesses in recent years, evaluating each company and combining the strongest operations, most efficient processes and most innovative programs that best support the future growth of the combined company. Merck says it intends to apply the same principles to the acquisition of Sigma-Aldrich to ensure a seamless integration. An integration team, which will include representatives from both companies, will be established to oversee and facilitate the integration process.
The combined life-science business is expected to have solid growth potential, strong and sustainable cash flow and meaningful efficiency potential on an operational level. Based on fiscal year 2013 financials, the business would have had combined sales of $6.1 billion, an increase of 79 percent, and combined EBITDA pre of $2 billion, which is an increase of 139 percent. Merck Group’s sales would have increased by approximately 19%. For the same period, the acquisition would have increased Merck Group’s EBITDA pre by approximately 24 percent and improved group EBITDA pre margin from approximately 30 percent to approximately 33 percent including expected synergies.
Bridge financing has been secured for the all-cash transaction, and Merck expects the final financing structure will comprise a combination of cash on Merck’s balance sheet, bank loans and bonds. Closing is expected in mid-year 2015, subject to regulatory approvals and other customary closing conditions. This purchase will be Merck’s largest acquisition, surpassing the $13.5 billion it paid for the acquisition of Serono in 2007.
And, speaking of Serono, analysts are largely noting that a successful acquisition of Sigma-Aldrich will mean more predictable earnings and make Merck KGaA less dependent on its largest division, the pharma business Merck Serono, which is largely driven by the drug Erbitux for cancer and Rebif for multiple sclerosis. While Merck has been working hard to boost its pipeline in recent years, that pipeline consists largely of early-stage candidates.
Analysts at Citigroup noted that the Sigma-Aldrich acquisition was good news in light of Merck Serono’s “long-standing poor track record in pharmaceutical R&D.”

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