NEW YORK (TheStreet) -- Germany's Merck KGaA has agreed to buy London-listed AZ Electronic Materials SA in a deal valuing the chemicals supplier to the electronics industry at £1.81 billion ($2.96 billion) including debt.
Merck will pay £1.57 billion for AZ's stock and assume £240 million of debt. The buyer said Thursday the deal will help it generate new formulations and products to meet the "increasingly shorter" life cycles in the electronics industry.
"Together with AZ's expertise in display technologies, Merck believes that its performance materials division will be in an even better position to develop future innovative solutions for its customers," the Darmstadt-based company said.
Family-controlled Merck is already the world's largest producer of liquid display crystals but is probably better known for its cancer drugs and laboratory equipment.Merck, which operates as EMD in the U.S. and Canada, said the acquisition will produce synergies of 25 million a year by 2016 and be accretive to earnings per share within the first full year after the offer closes. It also forecast 50 million of integration costs, which would be spread from 2014 to 2016. Merck is offering 403.5 pence a share, a premium of 53% to AZ's closing price of 262.9 pence on Wednesday, 33% more than the weighted average price of 303.4 pence over the past six months. AZ was floated at 240 pence a share in October 2010 by its former private equity ownersCarlyle GroupandVestar Capital Partners Inc.The company generated Ebitda of $262 million and profit before tax of $129.1 million on revenue of $793.9 million in 2012. However, its share price fell about 30% in April after issuing a profit warning prompted by a slowdown in its integrated circuit materials business. Both companies stressed the strategic value of the merger, pointing to the advantages of scale and diversity in their research and development and the increasing demand for products beyond Merck's traditional mainstay of liquid crystals for electronic displays. AZ's strengths are in photolithographic and silicon technologies and its customers include smartphone makers. Merck, which is making the offer through bid vehicle Merck 15 Allgemeine Beteiligungs GmbH, said it will finance the acquisition from existing cash and cash equivalent resources. AZ is registered in Luxembourg, despite its London listing and additional corporate support offices in Uxbridge, England, and Hong Kong. Thus, the takeover will be subject to Luxembourg and U.K. regulation. Merck has made its offer conditional on acquiring 75% of AZ's shares and wants to conduct a squeeze-out of any remaining shareholders if it reaches the required threshold of 95%. The deal is subject to regulatory approval in a range of jurisdictions. AZ has operations in China, Taiwan, Hong Kong and elsewhere in the Far East, as well as India, the U.S. and Europe. AZ shares were trading at 397.80 pence in early afternoon Thursday, up 51.31% on Wednesday's close. Adrian Mee, Michael Findlay, Peter Brown and Geoff Isles of Bank of America Merrill Lynch are advising Merck, which is taking legal advice from Richard Browne, Michael Ulmer and Annabelle Crocker of Allen & Overy LLP. John Deans and Neil Thwaites of Rothschild, Philip Shelley and Alex Watkins of Goldman, Sachs & Co. and Rahul Luthra and James Robertson of UBS are financial advisers to AZ. Clifford Chance LLP'sTim Lewis and Katherine Moir are providing legal advice. --By Jonathan Braude in London
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts