Merck KGaA agreed to buy Sigma- Aldrich Corp. for $17 billion in cash to expand in chemicals used in research labs and pharmaceutical manufacturing and reduce its dependence on drug development.
Merck will pay $140 a share, 37 percent more than Sigma- Aldrich’s closing price on Sept. 19, the Darmstadt, Germany- based company said in a statement today. St. Louis-based Sigma- Aldrich will add to Merck’s earnings immediately, according to the statement. Merck’s shares jumped the most in almost six years in Frankfurt.
The purchase will accelerate Merck’s shift away from developing pharmaceuticals at a time when its Serono biotechnology business has struggled to create new products. The company acquired Millipore Corp., a U.S. maker of lab equipment and chemicals, in 2010 for about $6 billion, and bought AZ Electronic Materials SA, a chemical supplier to the electronics industry, this year for about $2.5 billion.
“They seem to be backing away from drug development, which they haven’t been successful in for the last few years,” said Asthika Goonewardene, an analyst with Bloomberg Intelligence in London.
Merck rose as much as 9.4 percent, the biggest intraday gain since January 2009, and was up 5.2 percent at 73.21 euros as of 3:33 p.m., giving the company a market value of 31.8 billion euros ($40.8 billion). Sigma-Aldrich soared 34 percent to $137.05 in New York.
Merck, a family controlled company founded in 1668, got 58 percent of its revenue from pharmaceuticals last year, while chemicals accounted for 39 percent. The company makes liquid crystals used in flat-screen televisions in addition to lab equipment and chemicals. Merck acquired Swiss biotechnology company Serono in 2007, yet hasn’t had a major new drug approved since 2003.
Merck is committed to the pharmaceutical unit remaining one of the company’s three businesses, Chief Executive Officer Karl- Ludwig Kley said on a conference call with journalists today. The company, which highlighted Serono last week at a presentation to analysts, has taken steps to revive the unit’s pipeline of experimental medicines, which will allow it to be “a good and solid mid-sized” drug company, he said.
“Merck will always build its future on the three pillars” of pharmaceuticals, liquid crystals, lab equipment and lab chemicals, he said on the call.
Merck, which makes the Erbitux cancer medicine, last week promoted Stefan Oschmann, the head of the pharmaceutical unit, to be deputy chief executive officer and named Belen Garijo, CEO of the Merck Serono biopharmaceutical division, to its executive board as head of pharmaceuticals.
“Today’s deal shows the family is committed to a conglomerate structure in which all the branches of the company get investment funding,” Ulrich Huwald, an analyst at Warburg Research in Hamburg, said in a telephone interview. “After last week you can’t question the future of Serono.”
The Sigma-Aldrich acquisition will let the company provide a broader range of products to its Millipore customers, Kley said.
Guggenheim Securities and JPMorgan Chase & Co. provided financial advice to Merck, while Skadden, Arps, Slate, Meagher & Flom LLP was legal adviser. Bankers at Morgan Stanley advised Sigma-Aldrich and Sidley Austin LLP was legal adviser.
Sigma-Aldrich shareholders will vote on the transaction at a special meeting, and the deal is expected to close in mid-2015, Merck said.
The purchase values Sigma-Aldrich, excluding net debt, at about 19.9 times earnings before interest, taxes, depreciation and amortization for the past 12 months, compared with a median multiple of 9.5 times in specialty chemicals acquisitions of $100 million or more in the past five years, according to data compiled by Bloomberg.
The purchase eclipses the 2007 purchase of Serono, which was valued at about $13.5 billion at the time, as the largest ever by Merck.
--With assistance from Oliver Staley and Allison Connolly in London and Naomi Kresge in Berlin.