BUY OR SELL-Is Merck KGaA’s $6 bln bid for Millipore too costly?

(For more Reuters BUY OR SELL stories, click on [BUYSELL/])

* Merck KGaA launches $6 billion takeover for U.S. Millipore

* Bullish analysts see deal boosting earnings in mid-term

* Doubtful analyst says multiples Merck paid are too high

By Eva Kuehnen

FRANKFURT, March 1 (BestGrowthStock) – Germany’s family-controlled
Merck KGaA (MRCG.DE: ) agreed to buy U.S. biotech tool maker
Millipore (MIL.N: ) for $6 billion to diversify away from its
embattled drugs business. [ID:nLDE61R0MJ]

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 (TMO.N: )
had placed a bid. [ID:nN22198210]

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”.

Investment Analysis

(Editing by David Cowell)

BUY OR SELL-Is Merck KGaA’s $6 bln bid for Millipore too costly?