* Deal to be financed by bank debt, share issue
* Increases emerging market presence by 50 pct
* Meda has itself been a takeover target
(Adds quotes, details, background)
STOCKHOLM, July 31 Swedish drug firm Meda
said on Thursday it had agreed to buy Rottapharm for
$3.1 billion in a deal that will boost its profitability and
emerging market presence just weeks after the Italian firm
scrapped its flotation plans.
The deal, the biggest by far in Meda's history, puts weight
behind its chief executive's words that it prefers "to eat and
not to be eaten" in an industry that has seen a frenzy of M&A.
Meda itself has been a takeover candidate but turned down
approaches from U.S. drug firm Mylan.
"This means increased scale, reach and profitability, and by
this I think Meda will become a company that, to simplify this,
is bigger, is stronger, but especially is also better," Meda
Chief Executive Jorg-Thomas Dierks told a conference call.
Hopes for a new bid from Mylan were dashed this
month when Mylan bought a product portfolio from rival Abbott
, sending Meda shares down by almost 5 percent in a day.
Swedbank analyst Johan Unnerus said the Rottapharm deal and
integration would probably mean there would not be other
approaches for Meda in the near term.
"But these are relatively uncomplicated deals to integrate,
so if there are no major problems in that process, that
discussion will probably stay on the table," Unnerus said.
As long as the consolidation of the sector continues,
fuelled by scale advantages and a need to cut costs while
financing is readily available, a takeover of Meda by a larger
rival could still happen, he added.
EMERGING MARKETS, SYNERGIES
Buying Rottapharm will increase Meda's sales in emerging
markets by 50 percent, giving it access to new key markets in
South East Asia while boosting some treatment areas, such as
orthopaedics. Based on 2013 sales, Rottapharm's anti-arthritis
drug Dona is the biggest seller for the combined firm.
Meda said the 21.2 billion Swedish crown transaction would
include 15.3 billion crowns in cash, a 2.6 billion crown
deferred payment, and 30 million Meda shares issued to
Rottapharm's main owner, the Rovati family, making it the
second-biggest owner of Meda with a 9 percent stake.
The deal would be financed with bank debt and a 2 billion
crown share issue, Meda said.
Rottapharm had sales corresponding to around 5 billion
Swedish crowns in 2013, against 13.1 billion crowns for Meda.
Its earnings before interest, tax, depreciation and amortisation
(EBITDA) were around 1.4 billion crowns.
Meda said it saw 900 million crowns of cost savings for the
combined firm, taking full effect in 2016.
Adding those synergies to Rottapharm's profits last year
would mean the deal valued it at just above 9 times 2013 EBITDA
earnings, including debt. Meda trades around 11 times last
year's EBITDA earnings on an enterprise value basis.
Rottapharm this month pulled plans for an initial public
offering in Milan, citing unfavourable market conditions.
A source close to the deal said discussions between the two
firms had been going on before that. "They didn't start too long
before the decision to pull the IPO, but definitely they had
been going on when that happened."
The drug industry, which has seen a wave of mergers in
recent months, is trying to cut costs and add specialised
expertise as it faces pressure on pricing from healthcare
service providers in developed countries.
Meda said it expected to finalise the acquisition of
Rottapharm, which is present in 90 countries, in the fourth
quarter and that it expected no major antitrust issues.
Meda shares were up 3.4 percent by 1107 GMT, whereas the
wider Stockholm market was down 0.9 percent.
Rothschild advised Meda on the deal, whereas Danske Bank
, Nordea and SEB provided
financing. Rottapharm had no financial advisor.
($1 = 0.7470 Euros)
($1 = 6.8889 Swedish Crowns)
(Reporting by Sven Nordenstam and Anna Ringstrom, Additional
reporting by Valentina Za in Milan; Editing by Catherine Evans)