UPDATE 1-Eye drug maker Akorn to buy rival Hi-Tech Pharmacal for $640 mln

Tue Aug 27, 2013 8:44am EDT

* Akorn to pay $43.50/Hi-Tech share

* Deal represents premium of 23.5 percent

* Akorn expects deal to add to adj earnings/share immediately upon closing

* Akorn sees annual savings of $15-$20 mln

Aug 27 (Reuters) - Generic drugmaker Akorn Inc will buy rival Hi-Tech Pharmacal Co Inc for $640 million to expand its eye drug portfolio to oral liquids and ointments.

Akorn will pay $43.50 per Hi-Tech share, representing a premium of 23.5 percent to Hi-Tech's last close.

The all-cash deal will make Akorn the third-largest U.S. generic ophthalmic player and will significantly increase its retail presence in both prescription and over-the-counter products, the companies said in a statement.

The acquisition will also add branded OTC products in the categories of cough & cold, nasals, and topicals to Akorn`s existing TheraTears brand of eye care products.

Generic drugmakers are trying to gain scale and lower costs through strategic acquisitions in the face of a patent cliff that will result in several top-selling branded drugs losing patent protection and a wave of cheap generics flooding the market. The sector has seen two big-ticket mergers this year and several smaller deals.

Actavis Inc said in May it would buy Warner Chilcott Plc for $5 billion and Perrigo Co said late last month that it would acquire Irish drugmaker Elan Corp for $8.6 billion.

Hi-Tech develops and markets generic and branded prescription and OTC products, and specializes in difficult-to-manufacture liquid and semi-solid dosage forms. It produces a range of sterile ophthalmic, ear-related and inhalation products.

Akorn expects the deal to add to its adjusted earnings per share immediately upon closing, and lead to annual savings of about $15 million to $20 million within 12 months of closing.

The combined company is expected to have annual revenue of more than $500 million.

Akorn intends to fund the acquisition through a combination of Hi-Tech cash assumed and about $600 million in term loan borrowings. JPMorgan Chase Bank has fully committed financing for the deal, the companies said.

J.P. Morgan Securities acted as the financial adviser and Kirkland & Ellis and Polsinelli PC acted as legal advisers to Akorn on the transaction that is expected to close in the first quarter of 2014.

Hi-Tech was advised by Nomura Securities International, with Arent Fox and Tashlik Goldwyn Crandell Levy acting as legal advisers.

Akorn shares rose nearly 1 percent to $16.55 in premarket trading. Trading on Hi-Tech shares were halted.