* Deal would boost Sun generics business in developed world
* Meda's most promising asset Dymista allergy inhaler
* Olsson family controls more than fifth of Swedish firm
* Meda shares hit 5-1/2-year on news of talks (Adds detail on valuation, ownership, further analyst comment, context on recent deals)
By Sumeet Chatterjee and Kaustubh Kulkarni
MUMBAI, May 31 India's Sun Pharmaceutical Industries Ltd is in talks to buy Sweden's Meda AB for between $5 billion and $6 billion to boost its generics business in developed markets, two sources with direct knowledge of the process said.
Meda makes speciality products, over-the-counter drugs and branded generics - the same areas of focus as Sun. The Swedish company had sales of about 13 billion crowns ($2 billion) in 2012 and has a stock market value of roughly $4 billion.
Mumbai-based Sun is India's most valuable drugmaker, with a market capitalisation of some $20 billion, and has made several acquisitions in recent years.
But a deal for Meda would be the largest yet for a company which had cash of 40.6 billion rupees ($722 million) at the end of March.
If it goes through, the transaction would be the latest in a string of multibillion-dollar deals involving generic and mid-sized drug companies.
Such deals include the planned $5 billion purchase of Warner Chilcott Plc by Actavis Inc and Valeant Pharmaceuticals International Inc's $8.7 billion acquisition of Bausch & Lomb.
"Sun Pharma is in an extremely sweet spot with a low amount of debt and strong organic business growth," said Jagannadham Thunuguntla, equity head at SMC Global Securities in New Delhi.
"While this (deal) shows their aggression, they should play it a little carefully in terms of valuation," he said. "It can put the balance sheet under stress."
Buying Meda would give Sun access to Dymista, an allergy medicine that received U.S. approval last year and is viewed by analysts as having good potential. The inhaler product is manufactured and supplied to Meda by Cipla Ltd, an Indian rival of Sun.
TALKS WITH BANKS
Other Meda drugs have not performed so strongly in recent times, however, and its core earnings or EBITDA fell 16 percent last year. Analysts forecast core earnings to be flat in 2013, making its enterprise value of around 10 times EBITDA relatively expensive, according to one banker.
Sun is in talks with a clutch of banks to raise funds for a possible deal, the sources said, declining to be identified. They did not say how far along the discussions were, or how likely it was that a deal would be reached.
But the recent pace of acquisitions in the sector may suggest Sun would not have much trouble securing funding.
"There have been a lot of deals and money is cheap if they (Sun) need to borrow," said Lars Hevreng, an analyst at SEB Equity Research in Stockholm.
Possible rival bidders could include Valeant, which considered acquiring Meda in 2011, according to a source familiar with the situation speaking at the time. But Valeant may have its hands full integrating eyecare group Bausch & Lomb.
Clinching any deal is likely to hinge on the position of Sweden's Olsson family, which owns more than 22 percent of Meda as well as shipping, metal processing and property assets.
A spokeswoman for Sun declined to comment. Meda was not immediately available for comment.
Shares in Meda hit a 5-1/2-year high on the report, rising as much as 8 percent before pulling back to stand 3.4 percent higher by 1425 GMT. Sun shares closed down 2.8 percent in a broader market that was off 2.3 percent.
Last year, Sun bought U.S.-based Dusa Pharmaceuticals Inc for about $230 million, as well as URL Pharma from Japan's Takeda Pharmaceutical Co for an undisclosed amount.
It also sought to buy out minority shareholders in its U.S.-listed Israeli subsidiary Taro Pharmaceutical Industries for $571 million before withdrawing the proposal earlier this year.
($1 = 6.5624 Swedish crowns)