Merck KGaA (that's the original German Merck, not to be confused with the U.S.-based Merck trading as MRK) has offered $107 cash per share for Millipore (MIL) to beef up its life sciences product line. MIL currently trades at a P/E over 33, which looks expensive until you compare it to the average P/E of 37 for the entire medical instruments and supplies industry. MIL's results also look better than average: its ROE of 12.73% beats the industry's 9.8%, and its net profit margin of 10.31% surpasses the industry's 8.4%.
However, MIL trades far in excess of P/Es of direct competitors like Alcon (ACL) at 24, Baxter International (BAX) at 16, or Covidian (COV) at 27. Merck is paying this premium to earnings presumably because MIL's product line fits its own strategy well. Would other acquisition targets be superior fits for Merck KGaA? The firms named above have far larger market caps, so Merck KGaA is playing within its league by acquiring MIL.
Nota bene: Anthony J. Alfidi has no position in MIL, MRK, Merck KGaA, or any other company mentioned at the time this post was published.
