Deals and IPOs

Merck to buy Cubist Pharmaceuticals for $9.5 billion

Merck buys Cubist for $102 per share

Drug giant Merck said it will buy Cubist Pharmaceuticals for about $9.5 billion, or $102 a share in cash, bringing Merck a slate of medicines administered in the hospital setting, many for bacterial infections.

News of the deal sent Cubist's share price surging by more than 34 percent, to $101.15, in premarket trading. Merck's stock price also rose more than 5 percent.

The deal represents a 35 percent premium to Cubist's average stock price in the last five trading days, Merck said in a statement Monday. The equity value is $8.4 billion, with about $1.1 billion in debt.

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Buying Lexington, Massachusetts-based Cubist brings Merck the $1 billion antibiotic Cubicin, as well as a slate of other drugs for bacterial infections and one designed to help patients recover faster from bowel surgery. Cubist is also expected to win U.S. approval for another antibiotic, Zerbaxa, this month, which RBC Capital Markets analyst Adnan Butt estimates could draw more than $1.5 billion in annual revenue.

A researcher at a Cubist Pharmaceuticals lab.
John Guillemin | Bloomberg | Getty Images

"Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late-stage pipeline medicines," Merck Chief Executive Officer Ken Frazier said in the statement. "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."

The deal folds into Merck's outlined strategy to focus on acute care in the hospital setting, along with diabetes, oncology and vaccines. Drug-resistant bacteria, also known as superbugs, are a growing public health concern, and Cubist is one of few drugmakers with a major focus on antibiotics.

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Merck expects the deal to add over $1 billion in revenue to its 2015 base. It expects the transaction to be neutral to adjusted earnings-per-share in 2015, and to be "significantly accretive" in 2016. The companies expect the deal to close in the first quarter of 2015.

Correction: An earlier version had an incorrect share price for Cubist Pharmaceuticals.