Scope of consolidation 

Including the parent company Merck KGaA, Darmstadt, 236 (2009: 176) German and foreign companies are fully consolidated in the annual financial statements of the Merck Group. Of these companies, 214 (2009: 154) are located abroad. Due to the first-time consolidation of Millipore, the number of fully consolidated companies increased by 62. Ten companies were consolidated for the first time due to their formation or increased importance to the Merck Group, and twelve companies were deconsolidated, four of which were the result of a company merger. Four companies were liquidated; one company was deconsolidated due to secondary importance. In addition, three companies were deconsolidated as a result of the Théramex divestment. No companies are currently consolidated on pro rata basis. With the first-time consolidation of Millipore, a further associate has been added. Consequently, two associates are now included using the equity method.

Due to secondary importance 27 (2009: 32) subsidiaries are not consolidated. The impact of these subsidiaries on sales, profit after tax, assets and equity is less than 1% relative to the entire Merck Group. The interests in subsidiaries not consolidated due to secondary importance are measured at cost and presented under non-current financial assets. A list of all the Merck Group’s shareholdings can be found in Note [54].

Acquisition of Millipore

On July 14, 2010, Merck successfully completed the acquisition of 100% of the shares in Millipore Corporation, a leading life science company based in Billerica, Massachusetts, USA. The Millipore companies were then consolidated for the first time in the financial statements of the Merck Group. The combination with Millipore makes it possible to cover the entire value chain for pharmaceutical and biopharmaceutical customers. Offering integrated solutions that extend beyond the existing Merck Chemicals portfolio will create new growth opportunities for Merck. The total purchase purchase price amounted to EUR 5,137.1 million and was paid in cash. It consists of the payment of EUR 4,611.9 million for the outstanding shares as well as existing options from stock option plans and a payment of EUR 525.2 million to buy back the outstanding convertible bond of the Millipore Corporation. Acquisition-related costs of EUR 31.2 million were incurred, which were reported under “Other operating expenses” as project costs. On February 28, 2010 Merck had announced its intention to acquire Millipore for USD 107 in cash per share of Millipore common stock. The closing followed the approval of the acquisition by Millipore’s shareholders at a special meeting held on June 3, 2010 and the satisfaction of other customary conditions, including antitrust clearance in the United States and Europe. Millipore was delisted from the New York Stock Exchange on July 26, 2010. Likewise, an application for deregistration from the U.S. Securities and Exchange Commission (SEC) was filed on July 26, 2010. The deregistration took effect on October 13, 2010.

Within the scope of the following overview of the purchase price allocation in accordance with IFRS 3, the acquired assets, liabilities and contingent liabilities have been recognized at fair values in the balance sheet:

The most significant impact of the purchase price allocation on the balance sheet and the income statement results from the fair value adjustment of intangible assets and inventories. The adjustments to intangible assets relate mainly to the measurement of the existing customer relationships, technologies, trademarks and brands as well as ongoing development projects. The amortization of intangible assets resulting from the acquisition of Millipore is disclosed in the income statement under “Amortization of intangible assets”. Additionally, fair value adjustments totaling EUR 85.8 million were made in respect of Millipore inventories acquired as part of the acquisition. The complete turnover of these inventories by December 31, 2010 led to additional cost of sales, which compares with the sales generated by the acquired inventories. As a result, sales of the acquired inventories did not generate any additional income. The gross amounts of the acquired receivables amounted to EUR 259.7 million as of the acquisition date. The best possible estimate of the irrecoverable debts was EUR 2.7 million. The deferred tax liabilities disclosed relate in particular to the step-up of intangible assets and inventories. The remaining difference between the purchase price, including the convertible bond, of EUR 5,137.1 million and fair values of EUR 2,432.7 million is reported as goodwill. Goodwill attributable to non-controlling interest was not capitalized. Goodwill attributable to the shareholders of Merck KGaA mainly includes the expertise of the workforce, market share increases, as well as synergies from combining the two companies, and amounts to EUR 2,704.4 million. Synergies are primarily expected in the areas of administration, purchasing, production as well as by combining certain subsidiaries abroad. Goodwill is being allocated equally in U.S. dollars and euros because we expect that the level of synergies and future positive earning contributions will be roughly equivalent in these two key currency zones. The fair value adjustments made as part of the purchase price allocation as of December 31, 2010 are still to be considered as preliminary. Only the measurement of inventories as of the first-time consolidation has been finalized. Accounting-relevant analyses and calculations have not yet been completed for all other balance sheet items. Therefore, adjustments to these items could occur in 2011 as a result of new information.

The impact of the consolidation of Millipore on total revenues as well as the operating result was EUR 640.4 million and EUR –20.8 million, respectively. The operating result also includes amortization of intangible assets remeasured within the scope of the purchase price allocation as well as higher cost of sales due to the step-up of the acquired inventories to fair values. Additionally, restructuring expenses and integration costs of EUR 87.3 million were incurred in 2010.

Had Millipore been included in the consolidated financial statements of the Merck Group as of January 1, 2010, for the period from January 1 to December 31, 2010, total revenues and profit after tax would have amounted to EUR 9,974 million and EUR 682 million, respectively. The calculation of these figures assumed that the adjustments of the book values as a result of the purchase price allocation would have been identical. Consequently, amortization of intangible assets is included for twelve months. The step-up of the acquired inventories to fair values – in accordance with the assumed inventory turnover period – has been taken into consideration in full. The information on the hypothetical consolidation of the Millipore Group as of January 1, 2010 in the consolidated financial statements of the Merck Group is required under IFRS and only intended for comparability purposes. The comparison does not necessarily present a development that would have resulted had the Millipore Group actually been consolidated as of January 1, 2010. Nor are these statements intended to project future events or results.

Further acquisitions

At the end of December 2010, Merck acquired 100% of the share capital in Beijing Skywing Technology Co., Ltd., Beijing, China. The acquired company, which has been assigned to the Merck Millipore division, is a leading supplier to the Chinese biopharmaceutical industry. The payment of the purchase price of EUR 13.6 million will be made in 2011 as contractually agreed. Therefore, a corresponding liability was recognized in the balance sheet as of December 31, 2010. The company will be consolidated for the first time in 2011.

Divestment of Théramex

Pursuant to a contract dated October 28, 2010, Merck sold Théramex, a Monaco-based pharmaceutical company specialized in women’s health and gynecology, to Asaph Farmaceutische Onderneming B.V., Teva Italia S.r.l. and Teva Pharmaceuticals Ltd. (collectively “Teva”). Teva took over all the activities of Théramex, including 100% of the shares in two subsidiares, for EUR 269.3 million. The contract was subject to not only the customary closing conditions, but especially the condition precedent that antitrust clearance be obtained in the respective countries. Antitrust clearance from the French authorities was granted on December 20, 2010 as the final condition for the closing. The payment of the purchase price was made on January 5, 2011 as agreed. Consequently, a corresponding receivable was recognized in the balance sheet as of December 31, 2010. The sale includes the marketing rights to Théramex products in a number of countries, including Spain and Brazil. Merck Serono will continue to market Théramex products in certain other countries. Apart from the payment of the purchase price, Merck is entitled to certain performance-related milestone payments. Merck generated a gain of EUR 68.6 million from the sale, which was disclosed in the income statement under exceptional items. The divested business of Théramex contributed around EUR 84 million to Group sales in 2010.

The divestment of Théramex had the following effect on the consolidated balance sheet: