Is Merck KGaA's $6 Billion Bid for Millipore Too Costly?

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.

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% over the last six years and operating profit by 18.1%.

But such growth rates were driven to a huge extent by acquisitions, he added. "The average organic growth rate amounted to only 6% 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."