Smart Move - There are various reasons for companies to make acquisitions: expansion, investment, synergies, elimination of a competitor and strategy. The acquisition of Millipore by German pharmaceutical and chemical company Merck is all about strategy. Millipore has joined the business sector Merck Chemicals, which now comprises two new divisions: Merck Millipore and Performance Materials. Dr. Michael Reubold talked to Dr. Bernd Reckmann, member of the executive board of Merck and head of the Merck Millipore division, about the strategic approach behind the acquisition and the challenges that lie ahead in the chemical, pharmaceutical and materials industry.

CHEManager: Dr. Reckmann, Millipore complements Merck's existing portfolio. Were there any conditions imposed by the authorities to clear the transaction?

Dr. B. Reckmann: No, as you said, the product offering is highly complementary - Merck Millipore is a perfect fit. There are only very small areas where we have an overlap in products. At the end of the day, we will be one of the leading global players in the life science supply market with highly specialized products in highly growing markets. This whole business is driven by innovation. This is a deal that puts together complementary businesses instead of justifying itself out of cost savings. And, fortunately, there was absolutely no problem with the authorities neither in the U.S. nor in Europe. That was exactly what we had expected.

To really benefit from a merger it needs a good integration. What is your strategy to ensure a swift integration process of the Millipore part into Merck Millipore?

Dr. B. Reckmann: The keyword to describe this process is "best of both." We applied this approach in the integration of Serono, which was extremely successful. Merck is open to learning from and also to adopting processes where we think that the Millipore legacy works better to serve the future needs of the markets and the other way around. I think this is one of the key issues. The second key issue is speed in the integration decisions, because we have to recognize that an acquisition creates a lot of uncertainty and anxiety in the organizations. You get it resolved only if you make the decisions in a speedy, transparent and honest manner. Finally, the third important thing is to retain the key talents. I am glad to say that we kept the top talents in level one and level two of the Millipore management team, and with this strong team we can continue to deliver great results.

When do you expect the integration to be completed?

Dr. B. Reckmann: I think the major integration effort will take until the end of the year, but even then there will be a lot of things that need to be done, for example the harmonization of IT systems. For me the integration is completed when the people working for Merck Millipore do feel like Merck Millipore, and according to my experience this will take at least three years.

How will Millipore be integrated into the Merck organizational structure?

B. Reckmann: Millipore will be truly transformational for Merck Chemicals, and we will end up with having two high-growth innovative businesses. One is the life science tools business, which as a division we have named Merck Millipore, with pro forma revenues of €2.1 billion. The other is the high-tech business, which we have named Performance Materials, with pro forma sales of more than 1 billion.

What businesses will Merck Millipore include?

B. Reckmann: Merck Millipore will consist of three business units - Bioscience, Lab Solutions and Process Solutions - and each unit will itself comprise a number of key focus areas, such as protein research assays and reagents, cell culture solutions and drug discovery services for biopharmaceutical companies as well as laboratory chemicals for research, analytical and hospital laboratories. With this setup, I think we can really create something completely unique in the industry. Merck Millipore is committed to fully live up to what we have already agreed on as a vision: "unleash the potential of science for life."

And Performance Materials?

B. Reckmann: Performance Materials will comprise Merck's specialty chemicals materials activities, i.e. the Liquid Crystals, Pigments and Cosmetics and other material-driven businesses. The division will combine our successful range of materials-based products, technologies and innovative solutions, our strong application know-how and our distinctive customer focus to open up additional growth opportunities. Examples are liquid crystals for displays used in TVs, PCs and consumer electronics, LED and OLED materials for displays, lighting and photovoltaics, pigments for the cosmetics, paints and coatings industries, as well as active ingredients.

What does the acquisition mean for Merck's presence in North America?

B. Reckmann: We finally have reached critical mass in North America. In the chemical business we always have been underrepresented. Now, out of this combined business Merck Millipore we will do 35% of sales in North America.

Do you see opportunities to leverage synergies between Pharmaceuticals and Chemicals?

Dr. B. Reckmann: Basically not, synergies are not key. In fact, we are active in different businesses - Pharmaceuticals and Chemicals - for risk balancing aspects, not for synergy aspects.

On the market side, how do both parts of Merck Millipore compare?

Dr. B. Reckmann: Millipore has a very strong relationship with the biotech industry. We have very strong relationship more with the chemical pharmaceutical manufacturing industry. These things work together nicely. We will also use some of the "go-to-market" processes of Millipore and merge it into something more agile and more powerful than what we had before.

More agile and powerful suppliers - is that what your customers demand?

Dr. B. Reckmann: Yes, because one thing is clear: if you want to develop new drugs - and that is what our customers do - you need more than one discipline. Everything has become more complex today and you have to interact with networks. Otherwise you fail anyway. And both the pharmaceutical and the biotech industry will face tremendous challenges and, therefore, they have to reinvent how they do their business: how to do research more efficiently, how to take costs out of the manufacturing processes. There will be an enormous pressure for this industry to change. And I think that by combining the strengths of both organizations and by understanding exactly what our customers are doing we are able to add value on each level of the process chain and are in a very attractive position to help them to manage this transformation.

You said that this business is driven by innovation. Can you give us an idea of how much money you want to spend on R&D?

B. Reckmann: For Merck Millipore, we will have a very attractive R&D budget in the range of 6-7% of sales, or more than €120 million. This is number 3 in the industry and gives us critical mass to transform our knowledge and the needs of our customers into the solutions that really drive this innovation.

Can you also give a number for your R&D budget in the Performance Materials business?

B. Reckmann: In the Performance Materials business we invest even more on R&D - about 10% or even more of sales. For a chemical company, this number is outstandingly high, but Merck has a reputation of being very innovative. In the high-tech area we definitely want to generate new growth engines like liquid crystals, and we are addressing areas like organic electronics, flexible displays, photovoltaics, energy materials, lighting, and performance additives. Through our R&D focused on future demand drivers and a broad portfolio of innovative solutions the division will be able to more effectively address current and future megatrends.

What is essential for specialty or performance materials businesses to generate value or growth?

B. Reckmann: I think the key driver in these high-tech areas is understanding application technology. In these businesses just offering a molecule does not help, because you really have to educate your customer what additional value it could generate by implementing this chemical substance in a specific product or process. Therefore, you need a strong application technology. It is very often a project-driven business and at the end of the day you get a customized product, more or less.

Are you also open to grow that business by acquisitions?

B. Reckmann: Today, we don't see a big acquisition in this high-tech area because every chemical company would be more than happy if they had something like this and, thus, would definitely not be in a mood to divest it.