Merck KGaA to Buy Sigma-Aldrich for $17B

Merck KGaA today announced that it will acquire Sigma-Aldrich for $17 billion.
Under the terms of the agreement, Merck will acquire all outstanding shares of Sigma-Aldrich for $140 per share, which would represent a 37 percent premium to Sigma-Aldrich's closing stock price of $102.37 on Sept. 19. The deal is anticipated to be immediately accretive to Merck's EPS pre and EBITDA margin, the companies said, and Merck anticipates achieving annual synergies of about €260 million ($334 million) within three years after the completion of the acquisition.

In a statement, Merck KGaA Chairman Karl-Ludwig Kley called the deal a "quantum leap" for the company's life science business, whose contributions to the German firm's overall earnings would more than double with the addition of Sigma-Aldrich.

"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," he said.
The deal, he added, "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."
St. Louis-based Sigma-Aldrich develops and manufactures a wide range of life science products, including chemicals, biochemicals, and equipment for life science research ¬– including studies directed at genomic and proteomic research – as well as biotech and pharma development. The company was founded in 1951 and has about 9,000 employees.
In the omics-related life science tools space, Merck KGaA's purchase of Sigma-Aldrich would represent the largest transaction in several years, surpassing Thermo Fisher Scientific 's buy of Life Technologies for $13.6 billion earlier this year.

In a note, ISI Group analyst Ross Muken said that although he sees the newly combined firm as a "more formidable competitor to Thermo Fisher in base reagents/chemicals, we think that the new entity still lacks Thermo Fisher's breadth of offering given a lack of foothold in instrumentation."

Sigma-Aldrich President and CEO Rakesh Sachdev said the combined firms "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."

The companies said that in the laboratory and academia markets, the combined firm will provide customers a complementary range of products across laboratory chemicals, biologics, and reagents, while in pharma and biopharma production, Sigma-Aldrich will complement Merck KGaA business EMD Millipore's existing products and capabilities "with additions along the entire value chain of drug production and validation." Furthermore, the deal is anticipated to expand Merck EMD Millipore's global reach by increasing its presence in North America and expanding its exposure to Asia.

In 2013, Sigma-Aldrich recorded $2.70 billion in revenues and a profit of $491 million, or $4.06 per share. Merck KGaA had €11.10 billion in sales last year with net income of €1.20 billion, or €2.77 per share.

Merck KGaA will pay for the purchase through a combination of cash, bank loans, and bonds. It has secured bridge financing for the deal, which is expected to close in mid-2015.
Mizuho Securities analyst Peter Lawson in a note today that the deal "seems like a natural fit to us and takes Merck [KGaA] deeper into biology, with the Sigma business fitting well with Merck’s legacy chemical businesses and the acquired Millipore business. We see the potential for competitive bids as low based upon a high-end multiple, and only see a handful of other potential suitors."

Shares of Sigma-Aldrich rose nearly 34 percent in trading Monday morning on the Nasdaq to $136.71.

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