Merck KGaA Offers $2.6 Billion for AZ Electronic Materials

Merck, the world's largest maker of liquid crystals for flat panel displays, said it had agreed to buy Britain's AZ Electronic Materials for 1.6 billion pounds ($2.61 billion) in cash to diversify its offering.

Germany's family-controlled Merck, also a maker of cancer drugs and lab equipment, is offering 403.5 pence per AZ share, a premium of around 41 percent over AZ's 3-month volume-weighted average share price. The news sent shares in the British group up 52 percent, valuing it at 1.52 billion pounds.

While many peers in the pharmaceuticals industry are selling assets to focus on core businesses, Merck's deal underscores its position as a diversified group, with the family behind it seeking to spread its investment risk.

"Our philosophy has always been to never put all eggs in one basket," finance chief Matthias Zachert told a media call on Thursday.

AZ's chemicals are used to make flat panel displays in products ranging from TVs to smartphones such as Apple's iPad, and in chip manufacturing.

Analysts at Liberum Capital said the agreed price looked fair, with an 2014 enterprise value to core earnings multiple of 11.1 times, coming in line with the 9-12 times range typical of previous deals in specialty chemicals.

"While a counter bid cannot be ruled out the offer price seems fair and the significant premium may deter others from bidding," they said.

AZ's board of directors said they intended to urge shareholders to accept the offer. The directors have committed themselves to tender their own shares, representing approximately 0.7 percent of the total.

The takeover price plus €240 million ($325 million) in debt will be financed from existing cash reserves. It is conditional upon a minimum acceptance level of 95 percent of AZ's share capital.

The offer period will run for 60 working days until mid-February, Merck's Zachert said.