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Merck makes $17bn play for Sigma-Aldrich

Hopes their biggest deal to date will increase exposure to Asian markets

Merck KGaA HQ Darmstadt

Germany's Merck KGaA has cut a deal to buy US lab supply business Sigma-Aldrich for $17bn in a move that reduces the significance of its pharmaceuticals arm to the group.

Merck already has thriving lab business in Merck Millipore, which is one of the top three suppliers of tools to the life sciences industry, but combining with Sigma-Aldrich will help close the gap with market leaders in the €100bn life sciences sector such as GE and Thermo Fisher Scientific.

The German group is offering $140 in cash per share for Sigma-Aldrich - a 36% premium on the company's average share price over the last month - and has already gained the support of the US company's board although it still has to win over other shareholders.

Getting bigger in life science tools will allow Merck to expand in a category with reliable, more predictable revenue streams and reduce the relative importance of its pharmaceuticals division, which has had something of a new product drought in recent years, compounded by late-stage failures including recent casualty tecemotide.

Merck's chairman Karl-Ludwig Kley insisted that the expansion in life sciences did not, however, signal any faltering in its commitment to the pharma sector, which accounts for around 60% of its turnover at the moment. "We will stay in pharma [and] remain committed to pharma," he said.

Sigma-Aldrich is Merck's biggest acquisition to date - eclipsing its $13.5bn acquisition of Serono in 2006 and $6bn purchase of Millipore in 2010.

The St Louis-based company had revenues of around $2.7bn in 2013 across its lab, manufacturing and diagnostics divisions, with Europe and the US accounting for around 40% of its business apiece and Asia-Pacific accounting for most of the remainder.

"Currently we are under-represented in the US," said Kley, who suggested the merger was a "quantum leap" for both parties.

"With the strong presence of Sigma-Aldrich in the US market, we'll have a size which really allows us to take products and service to the customer throughout this great country," he continued, adding that the deal would also increase its exposure to fast-growing Asian markets.

Combining that with Merck Millipore's €2.6bn in turnover last year will create a player in laboratory tools such as chromatography, specialty chemicals and molecular biology tools, as well as products used in biopharma manufacturing, with sales of around €4.7bn a year and operating earnings of €1.5bn, said Merck.

There will also be opportunities to cut costs by around €260m after three years, although integration costs will come in at around €400m and the company has not revealed how many jobs may be lost as a result of the merger. Merck did stress that St Louis would remain a key location for the life sciences business.

Article by
Phil Taylor

23rd September 2014

From: Sales



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