Deal is a good fit
Merck to buy Serono for Sf16.6bn
September 22, 2006
By Angela Cullen
Frankfurt - Merck, the German drug maker that lost a bid for rival Schering this year, agreed to buy Switzerland's Serono for about Sf16.6 billion (R98 billion) to become Europe's largest biotechnology company.
The billionaire Bertarelli family would sell its 64.5 percent stake and Merck planned to offer Sf1 100 in cash for each remaining Serono share, the company said to the stock exchange yesterday.
Merck needs a partner to gain products after abandoning a treatment for Parkinson's disease and losing the battle for Schering to Bayer.
"It's a fit," said Markus Manns, a fund manager at Union Investment. "Serono has a US presence, which is good for Merck. Merck can have Serono manufacture Erbitux [the cancer drug]."
To fund the deal, the drug maker plans to sell E2.5 billion (R23.3 billion) of new shares, and use existing cash and loans. The Merck family will contribute up to E1 billion.
Merck regards its drugs unit as too small to compete in the $550 billion (R4.1 trillion) market. Buying Serono would add about E2 billion to annual pharmaceutical sales.
"This isn't an act of desperation," said Karl Heinz Scheunemann, an analyst at Bankhaus Metzler. "This is a good fit for both companies."
Merck is offering 5.8 times last year's sales and 22.6 times operating profit for Serono, compared with the 3.2 times sales and 15 times operating profit Bayer paid for Schering.
"We are very happy with the price," said Serono's chief executive, Ernesto Bertarelli.
Serono was founded in 1906 to extract proteins from egg yolk to make anaemia therapies. It pioneered infertility treatments in the 1960s, based on hormones extracted from the urine collected from post-menopausal nuns. In 1974, Fabio Bertarelli bought a controlling stake previously owned by the Vatican.
Three years later, Bertarelli moved the company to Geneva and changed the name to Ares-Serono. In 1987, Serono sold shares to the public and started work on genetic engineering. Ares-Serono began selling its first product based on biotechnology, Saizen, for growth hormone deficiency in children, in 1989.
Ernesto Bertarelli became chief executive in 1996, when his father died at 73. He led the company's listing on the New York Stock Exchange in July 2000, raising $1.8 billion for the company and his family.
The new Merck subsidiary would be located in Geneva and the US headquarters would be in Boston, the companies said. The combination will bring cost savings of about E100 million.
"This is not a cost-cutting exercise," said board member Elmar Schnee. "Because we are now truly global we will be a very interesting partner for companies looking for a partner to develop and market products on a global scale."
Merck said it would not give up its search for acquisitions. Targets included companies that would add E1 billion in research and development funding and global presence, said chief financial officer Michael Becker.
In June, the need for a partner became more pressing as the company abandoned its most advanced product in development, Sarizotan, a medicine to treat Parkinson's disease. - Bloomberg
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