U.S. Markets closed

Merck (MRK) Records the Largest Acquisition in Their History at $17 Billion

Zacks Research Staff

Merck & Co (MRK) has agreed to acquire US life sciences company Sigma-Aldrich (SIAL) for $17 billion, or $140 per share in cash. The acquisition represented a massive premium of 37% to SIAL’s Friday closing price of $102.45 per share.

Merck is currently trading at $60.80 per share, up about 4.90% on Monday.  Sigma-Aldrich is trading at about $136.82 per share, up about 33.65% per share.

This record breaking acquisition for Merck indicates a strong leap toward the life sciences business and an increase in presence in North America and the fast-growing markets in Asia. Merck will be able to enjoy the 10,000+ products that Sigma-Aldrich offers and a leading e-commerce platform in the industry.

Sigma provides big pharma groups such as Pfizer and Novartis with lab substances such as cell culture substrates. It also makes high-purity inorganic chemicals for the high-tech sector for food and beverage testing products. Sigma says it is the world's largest supplier of biochemicals and organic chemicals to research laboratories and had 2013 sales of $2.7 billion.

The Sigma-Aldrich purchase is expected to have an impact Merck’s adjusted earnings per share and operating profit margin and expects to see inherent synergies with the acquisition. Sigma-Aldrich, in its most recent period, reported $701 million in sales, up 2.9% over the prior-year period.

“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,” he added.

Rakesh Sachdev, president and CEO of Sigma-Aldrich, said: “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.”

Past Acquisitions

Healthcare companies are having a strong year in acquisitions and deals, with year-to-date activity in the sector topping $380 billion, well over double the year-ago level.

Merck’s divisions include its biopharmaceuticals division, Merck Serono, consumer health division, high-tech chemicals unit, performance materials, and Merck Millipore. 

Merck, the largest maker of liquid crystals for TV and computer screens, made lab equipment a major pillar of its business when it purchased U.S. group Millipore for $6 billion in 2010.

Merck's biggest deal before this one was the takeover of Swiss biotech company Serono, a maker of fertility treatments, for $13.23 billion. Sigma-Aldrich will assume the part of Millipore which accounted for about 25% of the company’s annual revenue.

Outlook

Merck has secured bridge financing for the all-cash deal and expects it to close midyear 2015.  The acquisition has been unanimously approved by Sigma-Aldrich's board of directors and will be presented to Sigma-Aldrich's shareholders for approval at a special meeting.

We currently have Merck as a Zacks Rank #3 (hold) and have had an average surprise in reported earnings of 4.94% in the past year.  With their latest acquisition, Merck should realize an immediate impact, so investors should keep a close eye on their next quarterly reports.  

We currently rank Sigma-Aldrich as a Zacks Rank #3 (hold) and have had an average earnings surprise of 2.45% in the past year.  A majority of analysts have upgraded their earnings outlook for the next quarter until next year.  Investors should read closely in the next reports to see how this acquisition helps the financials for this newly combined company.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the analyst report on MRK

Read the analyst report on SIAL


Zacks Investment Research