War of words begins over Versum offer

Merck KGaA has published an open letter to the shareholders of electronic chemicals producer Versum Materials after its board rejected an unsolicited offer to buy the company. Versum, which was spun off from Air Products & Chemicals in 2016, is in the process of a merger with Entegris and wishes to continue pursuing this. Merck made its offer of $48/share, giving Versum an enterprise value of about $5.9 billion, on 27 February.

Merck chairman and CEO Stefan Oschmann said that a combination “would create a deep and complementary portfolio of electronic materials, equipment and services for the semiconductor and display industries”. However, Versum responded that, “after careful review and consideration”, it had concluded that Merck’s “is not a superior proposal” and that the merger with Entegris “will create significant long-term value and is in the best interest of Versum’s shareholders”. Entegris CEO Bertrand Loy called its proposed deal “highly complementary and strategically compelling”.

The planned merger with Massachusetts-based Entegris, creating a global speciality materials player with an enterprise value of $9 billion, was unveiled in January. This is due to be completed in 2H 2019; Merck said that it was confident it could close a transaction with Versum in the same timeframe if the Versum board engages with it.

In its letter, Merck said that it was “disappointed” that the Versum board “has rejected without explanation our superior proposal” or accept “our offer to engage directly with Versum to understand the rationale for [this decision]”. It noted that the offer is a 51.7% premium to Versum’s pre-announcement price and 17.1% on the value of the Entegris stock they were being offered.

In addition, Merck said, its offer is “certain and immediate, without any of the significant ongoing integration, operational or market risks reflected in the value of the Entegris stock consideration and without the need for the achievement of synergies”. Versum’s own financial advisor, Lazard, had also concluded that the Merck offer was superior, it said.

The company added that it “has a strong reputation for innovation and has demonstrated a robust commitment to R&D spending and capital investment”. This philosophy, it said “is consistent with Versum’s culture and strength of its employees”. It would maintain Versum’s site at Tempe, Arizona, as its main hub for the combined electronic materials business in the US. News agency Bloomberg has indicated that Merck had been looking to buy Versum ever since the spin-off but was blindsided by Entegris. If it were to acquire Versum, semiconductors, which currently account for less than 20% of sales, would be about half of them.