Life Sciences

German firm buys American, but not for taxes: CEOs

Germany's Merck to acquire Sigma-Aldrich for $17 billion

German drugs and chemicals maker Merck KGaA said Monday it has agreed to acquire U.S.-based Sigma-Aldrich for $17 billion in cash to boost its life science business.

The deal, approved by Sigma-Aldrich's management, will see Merck acquire all shares for $140 apiece in cash. That represents a 37 percent premium over Friday's closing price of $102.37 a share.

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Sigma-Aldrich does about 60 percent of its revenue overseas and 40 percent in the U.S., thus subjecting the company to foreign taxes on sales outside the U.S. and then 35 percent in federal taxes on money brought back to the U.S.

The Merck KGaA logo sits outside the company's headquarters in Darmstadt, Germany.
Hannelore Foester | Bloomberg | Getty Images

Asked if the structure of the deal would eliminate that double taxation, Merck Executive Board Chairman Karl-Ludwig Kley said in a CNBC "Squawk Box" interview: "We pay taxes in every country to where we are. We are not a company looking for tax havens."

He said the company's effective tax rate is about 25 percent or 26 percent. Germany's effective corporate rate, including local taxes, is 29.58 percent, according to KPMG.

"Tax is the last consideration," he added shortly after the announcement. "We look at the commercial fit. We look at the business opportunities. Then you have to take into account issues like labor costs ... [and] infrastructure costs. For example you have low energy costs compared to Europe."

Sigma-Aldrich CEO Rakesh Sachdev said: "We pay an effective tax rate of about 28 percent, 29 percent, which is on the high side of most life sciences companies." But this a business deal, not a tax advantage transaction, he said.