Off Topic: You were asking for info on NOVARTIS
The Wall Street Journal -- May 14, 1997
Novartis to Pay $910 Million for Merck
Business
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By Elyse Tanouye and Stephen D. Moore
Staff Reporters of The Wall Street Journal
Novartis AG, outbidding international rivals, agreed to buy Merck & Co.'s insecticide and
fungicide business for $910 million. It plans to use the Merck unit to plug geographical and
product gaps in its own agricultural lines world-wide.
Novartis will pay top price: more than four times the Merck unit's sales of $200 million last year.
But the Swiss drug and chemicals giant figures Merck's business will give it a critical means of
expansion in the important U.S. market. Although it is the world's largest supplier of
crop-protecting chemicals, with revenue of $3.8 billion, Novartis derives only 16% of that total
from the U.S. market.
The Merck products should also get wider distribution, given Novartis's marketing strength in
Europe, Asia and Latin America, according to Novartis President Daniel Vasella. "This was an
excellent fit," he said.
Merck, based in Whitehouse Station, N.J., is shedding the unit as part of its broader strategy to
focus on the more-profitable human and animal-health businesses. In December, Merck said it
would combine its animal-health business with that of Rhone-Poulenc SA in a new company called
Merial. At the time, Merck said it would sell its insecticide business.
Novartis apparently wasn't the only bidder willing to pay a premium for Merck's business. Several
bidders, none of which Merck would identify, emerged in the auction. Some were as "financially
aggressive" as Novartis, a Merck spokesman said. But Merck selected Norvartis, based in Basel,
Switzerland, partly because the Swiss company agreed to keep all of the Merck unit's 145
employees, the spokesman said.
Merck will receive a payment at the upper end of what companies usually pay for such
agricultural-chemical businesses. That selling-price range is typically between 1.5 times and five
times a business's revenue, noted Hemant Shah, an independent analyst. The Merck spokesman
said the company would use proceeds from the sale for general corporate purposes.
For its effort, Novartis will get Merck's abamectin, an insecticide used to kill pests on high-value
crops like fruits and vegetables, and thiabendazole, a fungicide used to prevent attacks on crops
after they are harvested. Novartis will also take on several compounds that were being developed
by the Merck unit, including one promising insecticide which could be launched within months,
Novartis said.
"This looks like a very good deal for Merck," said David Saks, an analyst at Gruntal & Co. The
crop-protection business had lower pretax margins than those for Merck's pharmaceutical
business, he noted. Crop-protection products generally sport pretax margins of 20% to 25%,
compared with margins of 40% or more for pharmaceuticals.
While Merck was a small player in agribusiness, Novartis can parlay its global leadership position
into lofty profit margins, predicted Janet Dyson, a London-based Merrill Lynch & Co. analyst.
She said she expects Dr. Vasella to continue shopping for acquisitions in such areas as animal
health, ophthalmics, consumer health care and nutrition over the next few years. At the end of last
year, Novartis had seven billion Swiss francs ($4.86 billion) in cash.
Merck shares closed at $92.50, down 12.5 cents, in New York Stock Exchange composite
trading. Shares of Novartis, which was formed last year through a merger of Sandoz AG and
Ciba-Geigy AG, rose 29 Swiss francs, or 1.5%, to 2,009 francs on the Zurich Stock Exchange. |
