Abbott Laboratories (ABT.N) said on Friday it would acquire Chile's CFR Pharmaceuticals SA CFR.SN in a $2.9 billion deal that will more than double its branded generic drugs business in the fast-growing Latin American market.
This is the first deal for Abbott since it split into two businesses and spun off its blockbuster rheumatoid arthritis drug in a new company, AbbVie Inc (ABBV.N), last year and comes at a time when health mergers have surged.
Abbott plans to focus the branded generics business on about 14 or 15 fast-growing countries in emerging markets.
"Not all geographies are alike and some are not particular focuses for us," Chief Executive Officer Miles White said during a conference call with investors. White said the company was still looking at other transactions.
While the Latin American pharmaceuticals market has been attractive to big drugmakers, there are few other big opportunities like CFR because most companies are small, family-owned businesses.
The pharmaceutical retail and distribution industry does have some larger companies, such as Mexico's Grupo Casa Saba (SAB.MX) and Brazil's Hypermarcas (HYPE3.SA). Earlier this month, Casa Saba sold its Chilean health retail arm, Farmacias Ahumada, to Britain's Alliance Boots for $638 million.
Abbott will buy about 73 percent of publicly traded CFR from a holding company controlled by the Weinstein family, which founded the company in the 1920s. It will conduct a tender offer for the remaining shares.
Chile's antitrust regulator, the so-called National Economic Prosecutor's Office, said it will study the deal "to evaluate possible anti-competition risks arising from the operation."
It said there was an overlap of various product lines sold in Chile by both companies, but added that it could not calculate each company's current market participation or the level of concentration that would result from the operation without first gathering more detailed information.
The move was a surprise to Latin American analysts, who were unaware the company was in the midst of a sale. A few months ago its $1.2 billion bid for South Africa's Adcock Ingram (AIPJ.J) failed. <ID: nL5N0LC255>
"This is very surprising," said Claudia Cavada, senior analyst with Banchile Inversiones in Santiago. "It's a very good price compared to yesterday's closing price."
Abbott will pay 34.65 cents per share, or about 190.54 Chilean pesos.
CFR shares closed Thursday at 124.51 pesos and were trading at around 181.5 Chilean pesos on Friday. Abbott stock dipped 0.6 percent to $39.00 in New York.
JPMorgan analyst Michael Weinstein said in a research note that the move filled a hole while Abbott continues to weigh the sale of its established products business in developed markets.
CFR Pharmaceuticals sells about 1,000 products across Latin America and has 7,000 employees and research and development and manufacturing facilities in Chile, Colombia, Peru and Argentina.
Abbott sells healthcare devices and branded generics in 150 countries and has 69,000 employees.
The purchase would add $900 million in sales in 2015. Abbott expects the deal to close in the third quarter and to contribute to sales in the fourth quarter.
Barclays (BARC.L) advised Abbott on the transaction and Deutsche Bank Securities (DBKGn.DE) advised CFR Pharmaceuticals.
(549.90 Chilean pesos = $1)
(Additional reporting by Alexandra Ulmer, Rosalba O'Brien and Anthony Esposito in Santiago and Esha Dey in Bangalore; Editing by Jeffrey Benkoe, Sofina Mirza-Reid and Lisa Von Ahn)