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* Merck debt free after paying back Millipore debt
* CEO says ready for "ambitious" moves
* Merck wrapped up $2.6 bln AZ Electronic deal last week (Adds details on debt, industry deals)
By Frank Siebelt and Ludwig Burger
FRANKFURT, May 9 (Reuters) - German chemicals and drugs company Merck KGaA, fresh from a $2.6 billion acquisition, flagged its financial firepower and said it could join a deal frenzy sweeping the pharmaceutical sector.
Merck, which bought Britain's AZ Electronic Materials last week to boost the chemicals side of its business, could afford deals of 10 billion euros ($14 billion) or more, having eliminated its debt, analysts have said.
Its larger pharmaceutical peers have already embarked on a major reshuffling of their business portfolios. Novartis and GlaxoSmithKline (GSK) last month agreed to trade more than $20 billion worth of assets, while AstraZeneca is fighting off a more than $100 billion takeover approach from Pfizer.
"We are able to take ambitious steps. We can afford investments and acquisitions," Merck Chief Executive Karl-Ludwig Kley said at the group's annual general meeting on Friday.
Alliances or takeovers to boost its pharmaceuticals division in particular could be underway this year, Kley said.
Family-controlled Merck, which traces its roots to a 17th century pharmacy, is grappling to replenish its thin pipeline of experimental drugs.
The company's strong cash flow would allow it to swiftly pay back any debt taken on to help fund another takeover.
Merck has a free cash flow of 16.4 percent of revenue, above the average of 15.7 percent in the European pharmaceutical and life science sector, Thomson Reuters StarMine data shows.
"We will use this leeway over the next few years," Kley added.
Merck, the world's largest maker of liquid crystals for display screens, completed the takeover of AZ Electronic Materials last week. It plans to delist AZ, a maker of high-tech chemicals for tablet computers and smart phones, from the London Stock Exchange at the beginning of June.
Kley said Merck was now debt free, having repaid over the last four years more than 4.5 billion euros of debt from the purchase of U.S. lab equipment maker Millipore.
Following an overhaul, its non-prescription drugs unit, which is home to Seven Seas vitamins and Bion probiotics brands, could also be bolstered with asset purchases.
"Bolt-on national or regional acquisitions are possible," said Kley. Many industry observers have regarded the consumer healthcare unit as lacking critical mass. ($1 = 0.7214 Euros) (Editing by Erica Billingham)