Merck KGaA’s $17B Buy Of Sigma-Aldrich Corporation A Smart Deal: Analysts

Published: Sep 22, 2014

Merck KGaA’s $17B Buy Of Sigma-Aldrich Corporation A Smart Deal: Analysts

September 22, 2014

By Riley McDermid, Breaking News Sr. Editor

Wall Street analysts reacted warmly Monday to news that drugs and chemicals maker Merck KGaA agreed to acquire Sigma-Aldrich for $17 billion in cash as the company’s largest acquisition to date.

The deal will allow Merck to acquire all shares for $140 apiece in cash, a 37 percent premium over the latest closing price of $102.37 on Friday, Sept. 19. It has been approved by Sigma-Aldrich's management but still needs approval from more than 50 percent of the target's shareholders.

Merck is still very much a family affair, with 70 percent of its shares controlled the descendants of its 17th century founder—prompting analysts to point out that the family must really want to get the deal done to martial such a unanimous response.

“The family stands fully behind the conglomerate structure. The fact that they are not taking a big step further into pharma shows that continuous returns on their investment over time are certainly important to the family," said Warburg research analyst Ulrich Huwald in a note to investors.

Analyst Ross Muken, a life sciences industry specialist with ISI Group, said the move supplements Merck’s existing capabilities in multiple ways. "Sigma helps fill in a lot of the missing pieces," said Muken, referring to the company’s drug discovery and development, which will complement Merck’s pharmaceutical manufacturing.

Huwald agreed. “This looks like a very strategic deal and, at first glance, it makes a lot of sense--even if the size of the deal is surprising," he said. Merck's second biggest deal was its acquisition of Swiss biotech company Serono in 2007 for $13.2 billion.

It’s a fair price to pay, the company said Monday. "By merging, we are securing for us stable growth and profitability in our life science business and benefiting from trends like increasing globalization of research and pharmaceutical production," Merck Chief Executive Karl-Ludwig Kley said.

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