Merck to acquire Sigma-Aldrich for $17 billion

German pharma company Merck is to pay $17 billion to acquire Sigma-Aldrich, a specialist in chemicals, kits and services used in life sciences research.

Headquartered in Damstadt, Merck is a diversified life sciences business spanning four divisions: R&D-led medicines, consumer healthcare, performance materials and ‘life science tools’ division Merck Milipore.

The acquisition will see Sigma-Aldrich merged with the Merck Milipore business, which the company says will create an undisputed leader in the $130 billion global life sciences services industry.

Sigma-Aldrich, headquartered in St Louis in the US, is already the world’s largest supplier of biochemicals and organic chemicals to research laboratories, clocking up sales of $2.7 billion last year.

Merck first made a play for a lead role in the market when it bought US firm Millipore for $6 billion in 2010.

Merck’s move for Sigma-Aldrich is the latest in a series of major merger and acquisition moves in the pharma sector, but creates a new company to serve the global pharma industry, rather than a direct player.

The move represents a deepening of Merck’s diversified business model – the opposite strategy to many other pharma firms, such as Novartis, who divested their consumer health and Pfizer, who spun off their animal health division.

The price of $140 per share paid for the firm represents a huge 37% premium to the latest closing price of $102.37 on September 19, 2014, and a 36% premium to the one-month average closing price – a high price which will put pressure on the firm to demonstrate the benefits of the acquisition.

Merck says the deal is expected to be immediately accretive to its shareholder returns and profit margins, and the company says it can achieve annual synergies of around €260 million (approximately $340 million), which should be fully realised within three years.

Merck’s leadership team says the deal makes sense because it expands Merck Millipore’s global reach, increasing the company’s presence in North America and adding exposure to fast-growing Asian markets.

“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.

Mr Kley said the deal would allow the merged business to secure profitability, and respond to trends such as the globalisation of research and manufacturing, and said that it would allow greater investment in innovation.

Rakesh Sachdev, president and chief executive of Sigma-Aldrich, said the combined company would be able 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.

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