US-based Merck buys Cubist Pharmaceuticals for $8.4 bn

Merck & Company, known as MSD outside the US and Canada, has entered into a definitive agreement to acquire Cubist Pharmaceuticals Inc for $102 per share in cash. The transaction has an equity valuation of $8.4 billion and will also include $1.1 billion in net debt (based on projected cash balances) and other considerations for a total transaction value of approximately $9.5 billion.
 
“Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines. Combining this expertise with Merck’s strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance,” said Kenneth Frazier, chairman and chief executive officer, Merck.
 
Michael Bonney, chief executive officer, Cubist, added, “Combining with Merck is an exciting opportunity to accelerate Cubist’s established leadership in antibiotics and deliver significant, certain and immediate value to shareholders. We have a deep respect for Merck, and it is clear that they share our commitment to addressing the growing, global problem we are facing in combating antibiotic-resistant bacteria.”
 
For more than 20 years, Cubist has been involved in the discovery, development and supply of antibiotics to treat serious and potentially life-threatening infections caused by a broad range of increasingly drug-resistant bacteria. Cubist’s antibiotic Cubicin, the only approved once-a-day therapy for both S. Aureus bacteremia and complicated skin and skin structure infections (cSSSI), has been used to treat more than two million patients and continues to be an important therapy in the acute care environment. Cubist’s in-line and late-stage pipeline of anti-infective medicines, including Zerbaxa which is pending approval from the US Food and Drug Administration, will enhance Merck’s hospital acute care business in a variety of therapeutic areas, including Gram-positive and Gram-negative multi-drug resistant infections.
 
The acquisition of Cubist creates strong fundamental value with return on capital in excess of Merck's hurdle rate within a few years of closing. Merck expects the acquisition to add more than $1 billion of revenue to its 2015 base. While the transaction will be neutral to non-GAAP EPS in 2015, Merck expects it to be significantly accretive to non-GAAP EPS in 2016 and beyond. The acquisition will be accretive to both Merck’s sales and earnings growth. The companies expect the transaction to close in the first quarter of 2015.
 
Cubist complements Merck’s strategy and the global initiative Merck launched last year, particularly in the area of sharpening its commercial focus on key therapeutic areas that have the potential to deliver the greatest return on investment. With the company’s long-standing leadership in anti-infectives as well as its customer-focused operating model, Merck identified the hospital acute care segment as one of the company’s key priority areas in which it believes it can have the greatest impact in addressing significant unmet medical needs while delivering the greatest value to customers and society.