Merck & Co Inc, the second-largest US drugmaker, agreed to purchase Cubist Pharmaceuticals Inc, a biotech company, in a $9.5 billion deal.
“Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines,” said Mercks CEO Kenneth Frazier.
Under the deal Merck will pay $102 per share in cash, or $5.4 billion, which represents a 35% premium to Cubists average price of the last five trading days. The deal also includes a $1.1 billion in net debt, bring the total value of the transaction at around $9.5 billion.
Cubist, which was founded in 1992 and reported a revenue of $309 million for the third quarter, said it will spend around $400 million this year on its research and development divisions so it will have at least four new antibiotics by 2020 in order to fight bacterial infections, which have proven to be resistant.
The increasing thread of drug-resistant bugs has urged public health authorities to push big drugmakers into developing new antibiotics, a largely avoided investment area due to its lesser profitability compared to other business such as cancer medicines.
In July, Jim O’Neill, former chief economist of Goldman Sachs, was appointed by the UKs prime minister to lead a group of experts that are figuring out a way to motivate companies to invest in the development of new antibiotics.
Sanofi, GlaxoSmithKline and Roche have all promised to turn more financial attention to the long-neglected area or go into a joint research to create new bug-fighting antibiotics.
The takeover follows Mercks other big deal within six month, in June the company acquired Idenix Pharmaceuticals, which is focused on hepatitis C, for $3.85 billion.
The deal is also in line with Mr. Frazier preference on targeting small to mid-size companies which would be easily implemented into Mercks already existing network, rather than megamergers such as the $66 billion takeover of Allergan by Actavis agreed last month.
“Combining with Merck is an exciting opportunity to accelerate Cubist’s established leadership in antibiotics and deliver significant, certain and immediate value to shareholders,” said Cubist CEO Michael Bonney.
The companies expect the transaction to close in the first quarter of 2015.
Merck & Co Inc gained 0.56% on Thursday and an additional 0.94% on Friday to close at $61.49, marking a one-year increase of 25.98%. The company is valued at $175.30 billion. According to the Financial Times, the 19 analysts offering 12-month price targets for Merck have a median target of $64.00, with a high estimate of $72.00 and a low estimate of $57.00. The median estimate represents a 4.08% increase from the last price of $61.49.
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