UPDATE 5-Abbott buys Solvay's drugs unit for 4.5 bln euros

Mon Sep 28, 2009 6:26am EDT

Related Topics

* Abbott says deal EPS accretive by $0.10 in 2010

* Enterprise value of deal 5.2 bln euros

* Solvay to use cash to invest in chemical, plastics

* Says studies into reinvestments ongoing

* Solvay shares down 0.7 pct

(Adds CEO, analyst comments, details, updates shares)

By Aaron Gray-Block and Philip Blenkinsop

AMSTERDAM/BRUSSELS, Sept 28 (Reuters) - Abbott Laboratories (ABT.N) said it would buy the drugs unit of Solvay (SOLB.BR) in a 4.5 billion euros ($6.6 billion) deal giving Abbott full control of its Belgian development partner's cholesterol treatments and exposure to emerging markets.

The deal disappointed Solvay investors who had been looking for a higher price and Solvay's shares fell.

"In anticipation of future market needs, we are ensuring we have the technologies, products, infrastructure and reach," Abbott Chief Executive Miles White said in a statement.

Abbott, which will finance the deal with cash, said the deal will add $0.10 to ongoing earnings per share in 2010, doubling to more than $0.20 by 2012 and increasing thereafter, all before one-off transaction items expected to occur in 2010-2012.

The deal is the latest in an acquisition spree by Abbott which this month bought medical device company Evalve Inc for $410 million and eye treatment firm Visiogen Inc for $400 million.

JP Morgan analysts said the operating profit margin of Solvay's drug unit could be clearly improved under Abbott's ownership, adding that synergy potential could be meaningful.

But it added that while significantly accretive to Abbott's bottom-line, the deal will dilute its top-line sales growth.

Abbott, which co-markets with development partner Solvay cholesterol treatments TriLipix and Tricor, said the deal will add more than $3 billion in annual sales, the majority outside the United States and that Solvay has significant presence in key high-growth emerging markets, including Eastern Europe and Asia.

The enterprise value of the deal is 5.2 billion euros, including 4.5 billion in cash, additional potential milestone payments of up to 300 million euros between 2011 and 2013 and liabilities of about 400 million euros.

KBC Securities analyst Wim Hoste said the sale valued Solvay's drugs unit at 1.9 times EV/Sales, below its expected range of 2 to 2.5 times. "The quality of this transaction is slightly lower than what we had assumed," Hoste said.

He added the 300 million euros in milestone payments is related to Solvay's treatment for testosterone deficiency, Androgel, which has come under pressure from generic branding.

Solvay has also come under investigation by U.S. authorities for allegedly paying generic drug makers Watson Pharmaceuticals and Par Pharmaceutical Companies to delay generic competition.

Shares in Solvay initially opened higher, but later reversed gains and were down 0.7 percent at 74.20 euros at 0942 GMT, underperforming a 2 percent gain in the the DJ Stoxx European chemicals index .SX4P.

EXTERNAL GROWTH

Solvay said the proceeds from the deal will be reinvested in external and organic growth in strategic projects in chemicals and plastics, with a sharp focus on long-term value creation.

Studies about such reinvestments are ongoing, it added.

"We are building a new refocused group with the financial means to further accelerate sustainable growth," Solvay's board chairman Alois Michielsen said in a statement.

Solvay Chief Executive Christian Jourquin told reporters Solvay's drugs unit had provided the firm with low cyclicality, less exposure to energy costs and high-added value and that this would be the criteria guiding Solvay's reinvestment policy.

Jourquin said Solvay would not target hundreds of small projects and it will not rush any acquisition.

Shares in Belgian speciality materials group Umicore (UMI.BR), rumoured to be a Solvay M&A target, rose in morning trade after the Abbott deal was announced.

Solvay started a strategic review in April, considering a sale, a listing of its drugs unit or acquisitions. But Jourquin said a transformational acquisition would have been out of the company's reach.

Analysts at JP Morgan said a lack of cash returns such as a special dividend may be viewed as a disappointment, but Jourquin said a cash return was not Solvay's first objective.

The deal also includes Solvay's vaccines business.

Solvay's Dutch cell-based flu vaccine production facility -- which can produce both seasonal and pandemic influenza vaccines -- was validated earlier this month. Cell-based technology is thought to be more efficient than using chicken eggs and offers greater production scale.

The transaction is expected to be closed in the first quarter of 2010, pending competition approval.

Barclays Capital served as an exclusive financial advisor to Abbott, while Citigroup, Morgan Stanley and Rothschild advised Solvay. (Editing by David Cowell) ($1=.6810 euros)

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