* 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
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)
($1 = 56.2450 Indian rupees)
(Additional reporting by Ben Hirschler and Sophie Sassard in
London, with Helena Soderpalm in Stockholm; Editing by Patrick
Graham and David Holmes)