Dow Chemical Co. said Tuesday that it is discussing the possible sale of its Marion Merrell pharmaceutical subsidiary to German chemical giant Hoechst in a deal valued at $7.2 billion.
Analysts said the deal, if approved, will expand Hoechst's presence in the U.S. market and give Dow a chance to boost its dividend, buy back stock or make an acquisition in the chemical industry.
Marion Merrell Dow, whose products include the cardiovascular drug Cardizem CD and the Nicoderm nicotine patch, has been rumored for months to be on the auction block.
But the rumors about a possible sale intensified in recent weeks, with analysts predicting Hoechst would be the buyer.
In a joint statement, Hoechst, Dow and Marion Merrell said they are negotiating the sale of all Marion stock to Hoechst for $25.75 a share.
If approved, Dow, which owns about 71% of Marion Merrell's 278 million shares outstanding, stands to pocket about $5.1 billion from the proposed sale.
Officials with the three companies said the sale still needs approval from the companies' boards but that it is expected to be wrapped up soon.
"We are hopeful talks will come to fruition in the next three or four weeks," Marion Merrell Chairman and Chief Executive Fred Lyons said at a news conference in Kansas City, Mo., where Marion Merrell is based.
Dow and Hoechst are also discussing the possible acquisition of Dow's Latin American pharmaceutical business for $200 million.
Analysts said Marion Merrell will provide Hoechst with an opportunity to expand its presence in the United States.
"They're huge outside the U.S., so this gives them a chance to pump their products through Marion," Dean Witter analyst Harvey Stober said.
Hoechst already owns a stake in Canton, Mass.-based Copley Pharmaceutical Inc.
Marion Merrell could also deliver an experienced and extensive sales force to Hoechst, plus several promising drugs that the German firm lacks, analysts said.
Although Hoechst has several promising items in the pipeline, analysts said the company cannot afford to wait for these to pay off and was forced to look for a U.S.-based drug maker instead.
By negotiating to sell its stake in Marion Merrell, Dow Chemical may be preparing for a variety of moves, including a possible stock buyback, a hike in its dividend or an acquisition in the chemical industry, analysts said.
A spokesman for Dow declined to say what the company will do if the deal is completed, saying Dow's board will do what is "in the best interests of shareholders."
Analysts say the moves represent an important shift for Dow, which, like many chemical companies over the last 20 years, pursued an ill-fated strategy of diversification.
Marion Merrell's stock closed up $1 at $24.875 on the New York Stock Exchange, and Dow was up $2.375 at $67, also on the NYSE.