Merck KGaA Buys Sigma-Aldrich To Boost Lab Business, Expand Footprint
This article was originally published in The Pink Sheet Daily
Executive Summary
By buying U.S.-based Sigma-Aldrich, the German conglomerate hopes to bolster its Millipore lab business, by giving the biopharma technology, tools and service provider added depth and global reach.
With a painful two-year restructuring behind it - and its pharmaceutical franchise officially on the mend - German drug and chemicals group Merck KGAA now plans to boost its biopharma lab business by buying U.S.-based MilliporeSigma for $17 billion in cash.
Sigma-Aldrich is a life science and high technology company with more than 9,600 employees and operations in 40 countries. The target company, which says it is the world's largest supplier of biochemicals and organic chemicals to research laboratories, had sales last year of $2.7 billion. It was formed in 1975 when Aldrich Chemical Co. merged with Sigma International.
Its acquisition by the German group, announced Sept. 22, and backed by Sigma-Aldrich’s board, will extend Merck’s U.S.-based lab operations’ global reach, expand the German group’s overall footprint in North America, and add exposure to fast-growing emerging markets. [See Deal]
Karl-Ludwig Kley, chairman of Merck KGaA’s executive board, said the transaction marks “a milestone” for the German conglomerate, as it moves to make its three core businesses serving the pharmaceutical, chemical and life science sectors into sustainable growth platforms.
Major Deal For Life Sciences Operations
“For our life science business it’s even more than that: it’s a quantum leap,” he told a webcast to analysts. That’s because together the two companies “present a much broader product offering to our global customers in research, pharma and biopharma manufacturing, and diagnostic and testing labs,” he added.
The combination will offer the combined group stable growth and profitability “in an industry 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,” Kley said, without elaborating.
The biggest maker of liquid crystals for television and computer screens, Merck KGaA made lab equipment a major activity when it bought Millipore Corp for $7 billion in 2010 . That deal also gave the German group manufacturing expertise used for its efforts in the biotech arena.
Established in 1668, Darmstadt-based Merck KGaA is the world’s oldest pharmaceutical and chemical company. The founding family still holds some 70% of the group. Today’s Merck KGaA operates mainly in Europe, Africa, Asia, Oceania and Latin America. Because Merck & Co. Inc. for historical reasons holds the rights to the Merck name in the U.S. and Canada, its German namesake operates under the umbrella brand EMD Chemicals Inc. in North America, and since 2010, as EMD Millipore.
The German group has recently emerged from a painful restructuring launched in 2012 (Also see "Diversification Fails To Protect Merck KGaA From Industry Pressures" - Pink Sheet, 27 Feb, 2012.). Last week it said its drug unit Merck Serono SA was again fit for purpose, possessing a promising early-stage pipeline and poised to expand, using a combination of partnering and collaborations with academics and other drug companies (Also see "Merck Serono Says Partnering Part Of Its Future, Seeks Anti-PD-L1 Deal" - Pink Sheet, 18 Sep, 2014.).
The purchase of Sigma-Aldrich is Merck KGaA’s biggest acquisition, the previous being its ill-fated purchase of Swiss biotech company Serono in 2006, for $13 billion (Also see "Can Merck Serono Bounce Back?" - In Vivo, 22 Jul, 2013.)
Asked by analysts whether its takeover of Sigma-Aldrich would prevent Merck KGaA from another major pharma deal, Kley replied: “the assets we have in pharma are very, very interesting assets which reward investments, whether in the form of collaborations, partnerships, depending on the indications - so there’s no need as we see the business for us to move into a late stage deal in pharma. We do see a continuous need for collaboration for preclinical deals, for early phase deals, for technological deals in pharma – we might also see the need for some specific activities. But we did not see the need, after thoroughly analyzing our pharma franchise, to add scale just for the sake of adding scale.”
Asked to clarify, Kley said the latest acquisition will rule out further major acquisitions for at least two to three years, but that smaller bolt-ons and in-licensing deals would still be possible.