Versum Materials Board of Directors Rejects Unsolicited Proposal from Merck

28.02.2019 -

The Board of Directors of Tempe, Arizona-based electronic chemicals supplier Versum Materials has rejected Merck's unsolicited and non-binding proposal to acquire Versum for $48 per share in cash. In a news release, Versum stated that after careful review and consideration the Versum Board concluded that Merck's proposal is not a superior proposal and that Versum stays committed to completing the merger-of-equals transaction with Entegris, which the Versum Board believes will create significant long-term value, and is in the best interest of Versum’s shareholders.

In a surprise twist, on February 27 German family owned pharmaceuticals and chemicals producer Merck KGaA attempted to upset a previously announced bid by US company Entegris to acquire Versum Materials, a 2016 spin-off of Air Products & Chemicals.              

Without explaining its motivation to react a month after the two US companies announced their merger plans in late January, Merck said it would offer $48 in cash per share for the electronics specialist.

The Darmstadt-based company’s bid, worth altogether $5.9 billion, represents a premium of 51.7% to Versum’s undisturbed price on the last trading day before the Entegris announcement and a 15.9% premium over the price on Feb. 26. The Entegris-Versum deal was valued at around $4 billion.

Citing unidentified sources, the Bloomberg news agency suggested that Merck has been looking at Versum since it was spun off three years ago and had done considerable work on a potential offer internally before the Entegris bid caught it off guard.

“We truly believe in the power of a combined electronic materials portfolio of Merck and Versum,” said CEO Stefan Oschmann in announcing his group’s plans. “It is our clear intention to further strengthen our operations in the US.”

Oschmann said the combination of Merck’s and Versum’s businesses would create a “deep and complementary” portfolio of electronic materials, equipment and services for the semiconductor and display industries, where Merck is a leader in some segments.

The companies’ combined R&D capabilities, moreover, would enable faster innovation cycles and strengthen product offerings while offering increased sale, product and service depth and an enhanced global presence.

Pointing to investment of around $24 billion in the US market through acquisitions alone over the past nine years, including the takeover of laboratory products manufacturer Millipore for $7 billion in 2010 and fine chemicals producer Sigma-Aldrich for $17 billion in 2015, the CEO remarked that Merck already has a “strong footprint.”

In a letter to Versum shareholders, the German group asserted that Billerica, Massachusetts-based Entegris’ proposed all-stock deal “significantly undervalues” the Tempe, Arizona-headquartered electronics player. Instead of the “speculative value” offered by the US firm’s transaction, its own proposal would deliver “immediate and certain cash value.”

Merck’s Performance Materials business is an “innovation-driven market leader in electronic chemicals with exposure to high growth market segments,” the company’s letter to Versum shareholders underscores, before noting that it believes the complementary nature of the businesses and its experience with acquisitions should preclude any regulatory obstacles.

The Merck unit accounted for about 17% of its Q3 2109 group sales. Incorporating Versum, semiconductors would account for half of sales, and the company could expect to realize €60 million in annual synergies by 2022, CFO Marcus Kuhnert said in a conference call.

Unlike a merger with Entegris, a takeover by Merck would not require a shareholder vote, the letter to Versum shareholders promises. Merck has asked the Arizona firm to agree to let it undertake discussions and review the information required to perform due diligence – including information that it has furnished to the US bidder.

In its own initial reaction to the coup planned in Darmstadt, Entegris CEO Bertrand Loy defended his company’s proposed deal as “highly complementary and strategically compelling,” without commenting on whether it was prepared to sweeten it. The Massachusetts company’s targeted combination with Versum “is highly complementary and strategically compelling,” Loy said.