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DuPont buys Merck venture
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May 19, 1998: 12:33 p.m. ET
$2.6 billion acquisition will result in R&D charge of $1 billion, goodwill
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NEW YORK (CNNfn) - E. I. du Pont de Nemours & Co. agreed to buy out Merck & Co.'s share of their 50/50 joint venture, DuPont Merck Pharmaceutical Co., for $2.6 billion, the two companies said Tuesday.
The Wilmington, Del.-based chemicals maker said the acquisition will result in a $1 billion charge to write off expenses associated with research and development programs already in process. The charge likely will be taken in the second quarter.
Indeed, Merck Chairman and Chief Executive Raymond V. Gilmartin said the "substantial" R&D expenses were a contributing factor in its decision to divest the venture, which will be renamed DuPont Pharmaceuticals.
"We do not foresee DuPont Merck being in a position to contribute significantly to Merck's overall growth," Gilmartin said in a separate statement.
DuPont's R&D tab for the venture currently runs between $300 million and $400 million per year. Yet, with drugs such as the new Sustiva HIV treatment in final testing stages, DuPont Pharmaceuticals will need to increase R&D spending to about $500 million, Kurt M. Landgraf , executive vice president of the company's Life Sciences unit, said.
Still, Landgraf said, the venture represented different opportunities for DuPont than for Merck.
"We have learned a great deal from Merck, especially in the area of research and development," Landgraf told reporters during a conference call.
"Our size -- our ability to grow -- is not consistent with their strategic desires," he explained.
In addition, DuPont will recognize a separate, unspecified charge for good will -- or intangible assets -- of the joint venture. The acquisition, which is expected to be completed in July, is expected to reduce DuPont's earnings by 3 or 4 cents a share in 1998 and 1999.
The acquisition is consistent with DuPont's previously announced strategic plans of concentrating on the Life Sciences businesses.
The Life Sciences business -- which includes other businesses such as agricultural products as well as so-called "nutri-ceuticals" -- will represent about 20 percent of DuPont's overall sales once its Conoco Inc. oil subsidiary is spun off later this year. Landgraf has stated his goal is to increase the business to about 35 percent of sales by 2002.
The DuPont Merck venture was formed in January 1991 and has grown into a stand-alone company that had sales last year of $1.3 billion.
The joint venture currently has two major products: Coumadin, an anti-coagulant; and Cardiolite, a heart-imaging agent. The company hopes to receive Food and Drug Administration approval to market its new HIV treatment later this year.
-- by staff writer Robert Liu
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