Merck is shelling out more for Versum than it hoped to, but the synergies look promising

Frankfurt am Main (AFP) - German chemicals and pharmaceuticals giant Merck KgaA said Friday it had signed a 5.8-billion-euro ($6.6 billion) deal to buy Arizona-based Versum Materials, which supplies chemicals, gases and equipment for semiconductor manufacturing.

Looking to profit from growth trends in chipmaking, the world’s oldest chemical firm – founded in 1668 – swooped in with a higher offer for Versum after the group had already agreed a merger with US-based Entegris.

Darmstadt-based Merck “has signed a definitive agreement to acquire Versum Materials, Inc. for $53 per share in cash,” it said in a statement – higher than an initial offer of $48 per share made by Merck in February.

With sales of around 1.2 billion euros in 2018 and 2,300 employees across Asia and North America, Versum will be integrated into Merck’s “performance materials” division, which already produces inputs for circuits and liquid crystals for computer displays.

There are big growth opportunities in supplying chipmakers in their quest to build ever-more-intricate processors, according to Merck’s chief financial officer Marcus Kuhnert.

“Ultra-high-purity materials… have an immense impact” on the hardware for future applications like artificial intelligence, autonomous driving or connected objects, said Kuhnert said in a conference call.

“We will be ideally positioned to capitalise on the electronic industry’s growth,” he added.

In the near term, the tie-up should increase the revenue of the materials unit by half, from 2.4 billion euros last year.

The acquisition is Merck’s biggest since 2015, when it took over US materials supplier Sigma-Aldrich for $17 billion.

Merck also hopes to achieve 75 million euros per year of savings three years after the merger is complete, spending 125 million up front to get there.

But the division will remain Merck’s smallest after the pharmaceuticals and “life science” laboratory supplies units, which each brought in over six billion euros of revenue in 2018.

Executives still have to glean approval from Versum shareholders and competition authorities, hoping to definitively tie the knot “in the second half of 2019”.

“The regulatory process is well underway” and clearance should be granted “in a timely manner”, CFO Kuhnert said.

Investors in Frankfurt were sceptical of the move, with Merck shares shedding 2.3 percent to trade at 96.96 euros around 4:45pm (1445 GMT), trailing the DAX index of blue-chip companies.