Merck KGaA Shares Slide in Response to CFO’s Surprise Exit

Jan 27, 2014 11:51 am ET

(Updates with closing shares in seventh paragraph.)

Jan. 27 (Bloomberg) -- Merck KGaA shares fell the most in more than four years in response to the unexpected departure of Chief Financial Officer Matthias Zachert, who helped turn the company around in the past two years.

Merck slid as much as 12 percent, the biggest intraday decline since July 24, 2009. Societe Generale SA and Morgan Stanley lowered their recommendations on on the shares after Merck said the finance chief would leave to head German specialty chemicals company Lanxess AG, his former employer.

Merck was one of Europe’s worst-performing stocks when Zachert joined in June 2011. The shares returned 31 percent in the year ended Jan. 24. Analysts credit the 46-year-old German executive with restoring Darmstadt, Germany-based Merck’s reputation among investors and leading a restructuring of the pharmaceutical business.

His departure is “bad news for Merck,” Odile Rundquist, an analyst at Helvea in Geneva, said in an interview.

Zachert likes turnaround experiences and there wasn’t much more to do at Merck, which probably made the offer from his former employer attractive, Rundquist said.

“It will be very difficult for his successor to further expand the margins once the current cost-cutting program is fully completed,” she said.

Merck fell 10 percent to close at 119.30 euros at 5:30 p.m. in Frankfurt, giving the company a market value of 26 billion euros ($35.5 billion).

‘Zachert Premium’

Zachert helped restructure Serono, the prescription drug unit that accounts for more than half of Merck’s sales, cutting 1,100 jobs in Germany and closing former headquarters in Geneva.

Zachert also helped engineer a takeover bid for AZ Electronic Materials SA worth about 1.6 billion pounds ($2.6 billion) at the end of last year, a move intended to strengthen the industrial-materials unit that’s driven Merck’s sales growth in recent years as the drug business suffered setbacks.

He was the most likely member of management to drive transformative deals and investors are unlikely to continue to factor in a “Zachert premium” for the shares, Stephen McGarry, an analyst at Societe Generale, wrote in a note to investors today. He lowered the stock to sell from hold.

‘Unexpected Departure’

Analysts at Morgan Stanley also cut their recommendation, reducing it to equalweight from overweight. “His unexpected departure and absence of immediate succession plan reduces visibility on the delivery of the strategy in whose design and implementation Zachert played a pivotal role,” they wrote in a note to clients.

Axel Heitmann has headed Lanxess since it was formed in 2004 as a spinoff from Bayer AG. Lanxess shares closed 8.2 percent higher in Frankfurt.

Merck Chief Executive Officer Karl-Ludwig Kley told analysts on a call today that the search for a new CFO has started and that strategy will remain his job. Kley, who joined Merck as CEO in 2007 from Deutsche Lufthansa AG, where he was CFO for seven years, oversaw the purchase of lab equipment maker Millipore in 2010 for about $6 billion.

Kley turns 63 this year and has a contract with Merck through 2016. Merck’s board has a succession plan though he declined to say whether he would retire then and who would replace him.

“The finance organization has been substantially upgraded and reshaped,” he said. “We have good people in place and we are full of confidence that they will continue to do the job.”

There was also a change at the helm of the family board at Merck. Yesterday’s statement referred to Frank Stangenberg- Haverkamp as the chairman of the family board, succeeding Jon Baumhauer. Merck declined to comment on the change.

--With assistance from Sheenagh Matthews in Frankfurt. Editors: Kim McLaughlin, Phil Serafino