The move helps bulk up U.S.-based Schering-Plough, whose ambitious chief executive, Fred Hassan, has made no secret of his desire to find acquisitions.
Schering-Plough said it expected to achieve annual synergies of $500 million within three years of the purchase. It will finance the deal through a mix of cash, debt and equity. The price is well above the level of up to 9 billion euros ($11.7 billion) analysts had expected Akzo to achieve in an initial public offering (IPO), and shares in Akzo Nobel soared as much as 19% to their highest in six years.
Schering-Plough shares gained nearly 6% in early trade in Germany, as investors welcomed a deal that the company said should boost earnings per share by 10 U.S. cents in the first full year, excluding accounting adjustments and acquisition-related costs. The purchase is expected to close by the end of 2007.
Paul Diggle, an analyst at Nomura Code Securities in London, said the acquisition would give the U.S. drugmaker increased heft, although Organon's main business in oral contraceptives and female health was not growing that fast.
"It's not that exciting a business but it would appear Schering is more impressed by the CNS (central nervous system) projects that Organon is running than the market is," he said.
"Schering do need to get bigger if they are going to be a player ... this fills a gap in the late-stage pipeline by adding five Phase III compounds and a number of projects in Phase II."
ICI Bid Speculation
Akzo Nobel shares were up 15%, compared to a 2.4% rise in the DJ Stoxx European chemicals index. Schering-Plough shares were up 5.6% in Frankfurt.
"The 11 billion euros disposal price for Organon BioSciences is much higher than we and the market anticipated," said analyst Danny van Doesburg at SNS Securities.
Van Doesburg added the disposal would spark speculation Akzo would use the proceeds to buy other chemical companies, such as Britain's largest chemicals firm, Imperial Chemical Industries, Valspar and Sherwin-Williams.
ICI shares rose 5% to 487-1/2 pence. Schering-Plough's offer was made a week and a half ago and approved by Akzo Nobel's supervisory board on Sunday, Akzo Nobel Chief Executive Hans Wijers told reporters in a conference call.
"This is a better way forward for all stakeholders," Wijers said. Wijers said Akzo was considering both greenfield investments and acquisitions to strengthen its position in the coatings and chemicals sector.
"Any transaction that makes strategic sense and that creates long-term value will be considered," Wijers said. He also said he would look into other options of returning cash to shareholders and to optimize its capital structure, declining to give any further details.
Analysts had valued Organon at 9 billion euros on a stand-alone basis and 10 billion euros in a trade sale. Organon BioSciences, with 3.7 billion euros ($4.81 billion) in annual revenues, develops and markets prescription drugs, and animal health products.
Goldman Sachs was financial adviser to Schering-Plough and Morgan Stanley advised Akzo Nobel.