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“Fit for 2018” transformation program

At the end of 2011, we announced the extensive “Fit for 2018” transformation program, with which we are addressing significant market shifts, increasing competition in key product areas and efficiency deficits in our organization. The aim is to increase the competitiveness of Merck KGaA, Darmstadt, Germany. “Fit for 2018” covers all business sectors and regions of Merck KGaA, Darmstadt, Germany and consists of two phases: In 2012 and 2013, the focus is on establishing a global organization, implementing efficiency measures, and developing a long-term growth strategy. In the second phase, as of 2014, the focus will be on capturing future growth opportunities.

In order to strengthen the leadership to drive the global organization, we made altogether 51 new appointments to key positions in 2011. These included 32 positions that were filled by non-German employees and eight by female employees. In addition, we have redefined the relationships between our divisions, Group functions and legal entities. In this way, we want to streamline our organizational structure and accelerate decision-making processes.

In early 2012, we presented our plans for an efficiency program to our employees and the public. These plans include restructuring as well as reductions of the workforce across all business sectors and regions. Without first announcing detailed plans on cost and workforce reductions, we held consultations with the employee representatives in the countries concerned. A key success factor here was the unbiased approach to these talks. This enabled us to jointly reach an optimal solution for our goals in each respective case. The aim was to find socially acceptable solutions, as far as possible, and to justify them openly and fairly to our employees.

Key developments in 2012

Switzerland

In April 2012, we announced the efficiency measures for the operational business, which include the closure of the sites in Geneva and Coinsins, Switzerland. In accordance with the regulations relevant to such planning measures in Switzerland, Merck KGaA, Darmstadt, Germany called upon the employees there to submit alternative proposals by June 2012 for avoiding or reducing the planned workforce reduction. In the meantime, we held talks with the employee representatives called together at short notice at the sites in Geneva and the Canton of Vaud, as well as the UNIA trade union in Geneva and Vaud.

In mid-June, Merck KGaA, Darmstadt, Germany informed the responsible cantonal authorities and its employees of the final decision: A variety of proposals, concerning for example the social plan, had been submitted to the prescription medicines division. Nevertheless, none of the proposals about retaining the Geneva site could be incorporated into the plans. They were not reconcilable with the goal of eliminating duplicate functions in order to secure our viability over the long term.

Within the scope of restructuring measures, Merck KGaA, Darmstadt, Germany is consolidating all Group functions at corporate headquarters in Darmstadt. Pharmaceutical research and development is to be concentrated at the sites in Darmstadt (Germany), Boston (United States), Beijing (China) and Tokyo (Japan). For this purpose, around 750 of the jobs at the Geneva site are being transferred to other locations. Approximately 500 jobs have been eliminated in order to avoid duplicate structures. Around 80 jobs will be cut at the sites in the Canton of Vaud (Aubonne, Coinsins and Corsier-sur-Vevey). Production in Coinsins is being transferred to Aubonne. The closure of the Geneva site is scheduled for mid-2013, and Coinsins for 2014.

In order to cushion the impact of the changes, Merck KGaA, Darmstadt, Germany worked with the UNIA trade union and employee representatives to reach an agreement on a comprehensive social plan for the affected employees. This includes, for example, severance payments, early retirement arrangements and benefits to support employees transferring abroad or starting up their own businesses. In addition, Merck KGaA, Darmstadt, Germany made CHF 2 million available to mitigate the effects of closing the Geneva site on the local labor market. The sum is administered by a board consisting of the employee representatives and a lawyer appointed by the State Council of Geneva. Another measure is the Entrepreneur Partnership Program (EPP), which supports employees who have good ideas for starting up their own businesses. We have made € 30 million available for the EPP.

Germany

In September 2012, the company management and employee representatives reached an agreement on an efficiency program for our sites in Germany. The preceding consultation phase with employee representatives had begun in February. The aim is to reduce the workforce by around 1,100 positions in a socially acceptable manner by the end of 2015 – mainly through voluntary leaver and partial retirement programs. Forced layoffs are largely excluded until the end of 2017.

The program comprises around 100 individual initiatives aimed at increasing efficiency and focusing production on value-adding core activities. In order to strengthen the Darmstadt site, at least € 250 million in total will be invested there and at the other German sites in 2013 and 2014. Darmstadt is to be further expanded as our global corporate headquarters, meeting the most stringent competitive requirements as a modern production and R&D site. Industrial salt production in Lehrte will be discontinued.

DISCLAIMER

Publication of Merck KGaA, Darmstadt, Germany.

In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany operate under the umbrella brand EMD.

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