Tap Project Bayer Merck PDF

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ACCY 410 Bayer / Merck TAP Project...

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ACCY 410: TAP Project Bayer / Merck The firms involved in this M&A Transaction are Bayer Global Inc. (“Bayer”) and Merck and Co. (“Merck”). Bayer is a German multinational pharmaceutical and life sciences company based in Leverkusen, and it is one of the largest and most diversified chemical-pharmaceutical companies in the world. Bayer specializes in human and veterinary pharmaceuticals, with core competencies in consumer health care products, agricultural chemicals, and seeds and biotechnology products. Merck is an American multinational pharmaceutical company located in Kenilworth, New Jersey and it prides itself on being a premier, research-intensive biopharmaceuticals company. Consistently working to push the boundaries of their various products in order to save and improve lives, Merck delivers innovative health solutions by providing prescription medicines, vaccines, biologic therapies, and animal health products. It also publishes the Merck Manuals which are a series of medical reference books for physicians, nurses, technicians, and veterinarians. On May 6th, 2014 Bayer and Merck agreed to merge, with Bayer paying 99.07 Euros per share of Merck for a total of US$14.2 billion (Burger, 2014). However, the transaction was not completed until October 1, 2014 following the receipt of the required antitrust approvals. Acquiring Merck, a leader in consumer care, would further strengthen Bayer’s healthcare division in terms of product and geographical diversification. While Bayer had a successful consumer product line which included well-known brands like Bayer aspirin and Aleve, CEO Marjin Dekkers wanted the German conglomerate to become the world’s leader in over-the-counter (OTC) medications as he stated as one of the motives for this merger on CNBC. This made Merck’s consumer portfolio, which included leading brands like Claritin, Dr. Scholl’s and Coppertone now a part of Bayers assets. Aside from strengthening its over-the-counter business across therapeutic categories, this acquisition would allow Bayer to gain a stronger foothold in the North and Latin American market as a German company. CEO Marjin Dekkers said that this “acquisition was a major milestone in the group's path towards global leadership in the consumer products

line,” as it would consolidate Bayer’s client base and brands in the Americas through Merck’s reputation and offerings. With Bayer’s global presence in Europe and emerging countries, it would also be able to “take [Merck’s] products and position them stronger outside of the United States” which will present a major revenue synergy for Bayer (CNBC). In our analysis we are going to determine whether or not the acquisition was successful based on if the combination of the two companies made them procure a greater market share after the merger of the two companies. It is worth noting that Bayer’s bid of US $14.2 billion dollars is roughly 21 times Merck’s historical earnings before interest, tax, depreciation and amortization (EBITDA), far surpassing competing offers from other companies like Boehringer-Ingelheim and Reckitt Besnicker. This is well above the average multiples in a sector rife with M&A activity, and there are some financial motivations behind the high price. Bayer expects the integration of both businesses to generate cost and revenue synergies of approximately 200 million dollars and 400 million dollars respectively per annum by 2017. Bayer has also structured this deal as an asset acquisition in order to generate amortization charges over the following years, which will not affect cash profits and instead depress the accounting profits. This will result in a large tax benefit for Bayer, which is expected to offset the cost of acquisition of Merck over the next few years. Our analysis will examine the stock market reaction from Bayer’s acquisition of Merck. We will also discuss the effects of the acquisition on Bayer’s financial statements, and its financial performance after the acquisition of Merck. When analyzing this historic acquisition of Merck into Bayer, it was necessary for the evaluation and corroboration of the acquiring company’s year-end financial statements and 10k report. These comprehensive 10k annual reports provided by Bayer allowed for a glance into their financial performance prior to and following their acquisition of Merck. When looking at these reports, though, it is necessary to take into account that this provided financial information and forecasting is made by Bayer itself and must be examined for inherent bias. Prior to this acquisition, Bayer was a profitable and

successful company, consistently having increasing revenues, EBITDA and earnings per share. The EBITDA of Bayer grew by 7.8% from the years 2013 to 2014 while its core earnings per share grew by about 7.3%. In 2014, Bayer began taking the necessary steps to transform their company into a truly integrated Life Science company through the acquisition of Merck. By the end of the 2014 year, Bayer had seen much positive increase in not only sales, revenue and EBITDA but also its earnings per share. By the year 2015, Bayer’s revenues grew to a record breaking $46 billion, while its EBITDA grew by over 18%. Bayer’s core earnings per share had grown by 16% within one year, which speaks to how successful this acquisition was. With all of this acquired equity and resources, Bayer Global Inc. did become responsible for shaping this newly acquired branch of this company which did noticeably increase different expense accounts. From the years 2014 to 2015, Bayer increased their research and development expense by over 20%. From 2013 to 2014, this account had only increased by mere 3.8% in comparison. These higher expenses are necessary if Bayer wanted this large acquisition to be worth their money and shares. Just from this initial analysis of Bayer Global Inc.’s 10k report, it is noticeable that there is a plethora of information to be evaluated and studied to understand the full positive and negative effects that this acquisition has had on this company.

Burger, L. (2014, May 06). Bayer wins Merck & Co's $14 billion consumer unit auction. Retrieved July 30, 2020, from https://www.reuters.com/article/us-merck-co-bayer/bayer-wins-merck-cos-14billion-consumer-unit-auction-idUSBREA450BL20140506...