Is Merck KGaA's $6 bln bid for Millipore too costly?

By @ibtimes on

FRANKFURT - Germany's family-controlled Merck KGaA agreed to buy U.S. biotech tool maker Millipore for $6 billion to diversify away from its embattled drugs business.

Merck's bid represented a 13 percent premium to Friday's closing price and was 50 percent above the close on Feb. 19, the trading session before Reuters reported Thermo Fisher had placed a bid.

While analysts said the deal made strategic sense, they were also concerned Merck may be paying too much for the maker of filters and purifiers for laboratory water and other materials used in making biotechnology drugs.

STRATEGIC SENSE

For the time being, the positives outweigh the negatives for us, said WestLB analyst Cornelia Thomas, who has an add rating on the stock.

Merck KGaA is transforming the life sciences business into a higher-margin, less-cyclical one fitting into the overall strategy. Given that Merck has a significant amount of cash financing the deal, we would expect it to become earnings accretive medium term.

DZ Bank analysts Elmar Kraus and Thomas Maul said the acquisition may look a bit expensive at first glance.

But they added that on the strategic side, the acquisition can be considered very positive as it creates a combined company with significant scale in the high-growth bioresearch and bio-production segment. DZ Bank has a buy rating on Merck.

Equinet analyst Martin Possienke also said he saw the deal positively over the medium term and pointed out it was still unclear whether all Millipore shareholders would accept the bid.

TOO EXPENSIVE

In our view, the valuation is rather high, said Merck Finck analyst Carsten Kunold, who has a sell rating on Merck. He pointed out that Millipore has grown sales by 13.4 percent over the last six years and operating profit by 18.1 percent.

But such growth rates were driven to a huge extent by acquisitions, he added. The average organic growth rate amounted to only 6 percent sales growth. Based on that growth rate, the multiples paid appear to be rather high, he said. Equinet analyst Martin Possienke also said the deal looked rather expensive. (Editing by David Cowell)

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