Acquisitions Audited by KPMG

With the closing of the share purchase agreement on January 5, 2007, Merck acquired from the Bertarelli family the majority of the shares and voting rights of the Swiss pharmaceutical and biotechnology company Serono S.A., Coinsins, Switzerland, and renamed it “Laboratoires Serono S.A.“. Additional shares were acquired through a public tender offer under Swiss law that ran until February 22, 2007, as well as on the stock market. A squeeze-out to aquire the remaining shares was successfully completed on July 6, 2007, with the ruling issued by the Civil Court of the City of Basel. The delisting of Merck Serono shares from the SWX Swiss Exchange of Merck Serono shares took place on July 18, 2007. The acquisition of 100% of the Serono shares involved cash payments of €10,271 million. In addition, the net assets of the holding company Bertarelli Biotech S.A. (now: “Merck Serono S.A.“) were acquired from the Bertarelli family for €571 million. The holding company had liquid assets amounting to roughly the same amount.

The acquired assets, liabilities and contingent liabilities have been recognized at fair values in the balance sheet and are as follows:

The most significant impact of the purchase price allocation on the balance sheet and the income statement results from the fair value measurement of intangible assets and the revaluation of inventories: Intangible assets mainly comprise technologies and know-how, license, in-process research as well as trademarks and brands. Amortization is presented separately in the income statement before the operating result. In addition, the fair value measurement of Serono’s inventories resulted in an increase of €734 million. This amount is fully expensed in the income statement in 2007 in accordance with the assumed stock turnover time. Due to the non-recurring nature and size of this amount, we disclose it under exceptional items. The write-up of intangible assets and inventories in particular has resulted in deferred tax liabilities that account for the vast majority of the adjustment of €1,124 million reported under other non-current liabilities. The remaining difference between the purchase price and fair value has been recognized as goodwill. It primarily included the value of expected synergies, unmeasured early-stage in-process research, and the workforce. Synergies are expected primarily in R&D, purchasing, consolidation of local subsidiaries and IT infrastructure. The changes made in the fourth quarter of 2007 to the preliminary purchase price allocation relate mainly to the measurement of intangible assets, as well as provisions and the related deferred taxes. The changes were made on the basis of detailed information on individual product lines and legal disputes.

The impact on the operating result of the inclusion of Serono was €151.0 million in 2007. In addition, restructuring and integration costs amounting to €153.6 million were incurred.