Merck sells lab unit for $1.68bn
FRANKFURT, Germany (Reuters) -- Germany's Merck said on Monday it agreed to sell its laboratory products distribution unit to private equity firm Clayton, Dubilier & Rice for $1.68 billion in a deal that could transform its business.
The drugs and chemicals maker said the divestment -- which analysts had expected to fetch between one and 1.2 billion euros ($1.3-1.5 billion) -- would reduce sales by a third and operating profit by about 10 percent, resulting in an improved profit margin.
Excluding pension provisions, Merck said, it would be almost free of debt after the sale. It said it planned to expand its core businesses in the medium-term.
Analysts say disposing of the VWR International business will boost group margins, raise cash for investment in more profitable activities such as the group's booming liquid crystals unit, or to make acquisitions to strengthen pharmaceuticals.
"The disposal will improve margins and fetch Merck a profit of 50 to 100 million euros," said Equinet analyst Martin Possienke.
"It's a good price -- this will help margins and reduce net debt," said WestLB analyst Andreas Theisen.
VWR had 2002 sales of over $2.5 billion but generates low margins. Merck dropped plans to float the unit last year and said in December it was likely to sell the company in the first quarter of 2004.
Goldman Sachs' analysts, who upgraded the stock last week to outperform from inline, said then a possible sale of VWR could boost profit margins before interest and tax to 15-16 percent in the long term from 10 percent at present.
Reuters had reported on Friday that Merck was nearing a deal to sell VWR.
Results beat forecasts
Merck also said on Monday its fourth-quarter operating profit excluding exceptionals came in at 182.8 million euros, beating the consensus of estimates on the back of a strong showing in liquid crystals.
A Reuters poll of 14 brokerages had predicted an operating profit of 157 million euros for 2003.
"The results are clearly above my estimates and the estimates of the market," said Equinet's Possienke.
Quarterly sales were roughly flat at 1.8 billion euros.
Sales of liquid crystals, which go into flat screens, cell phones and laptop computers, rose nearly 26 percent to 136.7 million euros.
Sales of generics, part of the group's pharmaceuticals business, rose 12 percent, compensating for a slowdown in the main ethicals business.
The company has been hit by generic competition to diabetes treatment Glucophage and lower royalties from a marketing deal with German rival Schwarz Pharma.
Merck shares have risen nearly 25 percent since October, driven by hopes for its liquid crystals and anti-cancer drug Erbitux, and the prospect of selling VWR.
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