Germany's Merck To Acquire Serono

Three months after losing a bidding war with Bayer over Schering, Germany's Merck has announced a deal to buy Switzerland's Serono, Europe's biggest biotech drug company, for $13.3 billion.

The announcement follows an aborted attempt on the part of family-controlled Serono to find a buyer earlier this year and signals a continuing trend toward consolidation among mid-sized pharmaceutical companies. Two other mid-sized firms, Altana and Nycomed, also announced a deal last week.

Pending government approvals, Merck will obtain the Bertarelli family's 64.5% stake in Serono and then buy up its publicly traded shares. Merck plans to combine its pharmaceutical division with Serono to create Merck-Serono Biopharmaceuticals, a business that will have annual sales of close to $10 billion.

"This acquisition transforms Merck's pharmaceuticals business and creates a leading position in the world of biologic medicines," says Michael Roemer, chairman of Merck's executive board. The companies are "a perfect fit," he adds, with 28 compounds in development and a combined R&D budget of $1.3 billion.

Serono CEO Ernesto Bertarelli points to the combined company's strength in neurology, oncology, and in biopharmaceuticals.

Acquiring a biopharmaceutical company constitutes a significant change in direction for Merck. Schering, the object of its earlier bid, is primarily involved in small-molecule drugs. One important commonality between the two target firms, however, is a good U.S. presence.

Volker Braun, an analyst with the Frankfurt-based investment firm Equinet, says the deal, although unexpected, makes sense. He notes that Merck already has one biotech drug on the market, the cancer treatment Erbitux, which it codeveloped with ImClone Systems and markets outside the U.S.

Braun adds that the acquisition also illustrates the pressure the two companies were under to consummate a deal. "On a long-term basis they no doubt believed they didn't have the critical mass to survive stand-alone," he says. "Serono was looking for a takeover partner, and Merck was unable to complete its deal with Schering. So one and one make two in the end."