Fresenius to enter U.S. drug market with APP

By James Regan and Kim Dixon

FRANKFURT/WASHINGTON (Reuters) - German medical group Fresenius (FREG_p.DE) unveiled a $3.7 billion deal to buy U.S. company APP Pharmaceuticals APPX.O to take control of a key drug used by its dialysis unit.

The agreed takeover, one of the biggest by the healthcare group, sent Fresenius shares tumbling as much as 11 percent as analysts cited a high price and after the company said it would finance part of the deal through a capital increase.

Fresenius owns the biggest worldwide provider of dialysis services, and dominates that market with U.S. rival DaVita Inc. (DVA.N). APP has become the main supplier of the drug heparin after a recall by Baxter International Inc (BAX.N).

Heparin is a vital blood-thinning drug used in patients on dialysis, a procedure to clear the blood of waste that is used mostly in patients with kidney disease.

By taking control of APP, Fresenius could curb the rise in heparin's price, Oppenheimer analyst Balaji Gandhi said. "DaVita could ride the coattails" of that price moderation, he added.

APP shareholders will receive $23 a share in cash, a 29 percent premium to the stock's last closing price, valuing APP at $3.7 billion, the companies said on Monday.

They could get a further $6 a share in the second quarter of 2011 if APP beats a core profit target. Fresenius will also take on APP's net debt of about $940 million, APP added.

Fresenius stock was 9.3 percent lower at 49.44 euros, among the biggest percentage losers in the German mid-cap index .MDAXI. APP soared 32 percent, or $5.68 to $23.52 on Nasdaq.

APP, based in Schaumburg, Illinois, sells injectable generic drugs for dialysis, cancer, pain and critical care management in the United States and Canada. It has about 1,400 staff.

The company had 2007 sales of $647 million and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $253 million. It is forecasting 2008 sales of $730 million to $750 million and adjusted EBITDA of $285 million to $300 million.

The takeover will have no overall impact on earnings per share in the first year but will clearly boost earnings from the second year going forward, Fresenius said. It expects to close the deal at the end of 2008 or start of 2009.

CAPITAL INCREASE

APP will become a part of Fresenius' Kabi unit, its infusion drug therapy and nutrition division.

"With the APP platform, Fresenius Kabi will be able to market its product range in the U.S. Fresenius Kabi's international marketing and sales network will allow us to sell APP's products globally," Fresenius Chief Executive Ulf Schneider said.

Fresenius plans to finance the purchase with a mix of debt and equity aimed at minimizing the impact on Fresenius SE's credit ratings, with the largest portion through debt.