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Germany’s Merck Bets On Chips

Materials: Deal to buy AZ Electronic Materials will add a new business

by Alexander H. Tullo
December 6, 2013 | A version of this story appeared in Volume 91, Issue 49

Credit: IBM
AZ supplies materials to semiconductor makers such as IBM.
A large disc imprinted with electronic components is held by gloved hands, diffracting the light that shines from its face.
Credit: IBM
AZ supplies materials to semiconductor makers such as IBM.

In a bid to broaden its offering to the electronics industry, the German drug and chemical maker Merck KGaA has agreed to purchase AZ Electronic Materials for $2.6 billion.

AZ is the former electronic chemicals business of Clariant, which sold the unit to the private equity firm Carlyle Group in 2004. An initial public offering of AZ stock in 2010 valued the company at about $2 billion.

More than two-thirds of AZ’s nearly $800 million in 2012 sales came from materials that are used to fabricate computer chips. They include dielectrics, chemical mechanical planarization slurries, and photoresists. Most of the rest of its business is in materials for displays and lighting. The firm generated about $260 million in pretax profits last year.

Merck is already a player in electronic chemicals through its business in materials for liquid-crystal displays. Its electronics sales last year were about $1.6 billion. The company has also been branching out in recent years, largely into materials for organic light-emitting diode displays and lighting.

“The combination will enable Merck to access additional growth areas in the electronics industry to benefit even better from the increasing demand for electronic devices beyond displays,” says Merck Chairman Karl-Ludwig Kley.

The price that Merck is offering represents a 41% premium over the three-month average of AZ’s stock price. AZ’s directors have tendered their shares and are recommending that other shareholders do the same.

Paul Satchell, a stock analyst with Canaccord Genuity, believes AZ shareholders will end up accepting the offer because a better one is unlikely to come along. “AZ is simply so specialist that extracting material synergies would be very difficult for anyone except a close competitor,” he says. “Antitrust considerations would prevent such a bidder.”


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