May 13, 2007 / 8:51 AM / in 11 years

Merck KGaA sells generics unit to Mylan for $6.6 bln

FRANKFURT (Reuters) - Merck KGaA (MRCG.DE) will sell its generics business to U.S. Mylan Laboratories Inc. MYL.N for 4.9 billion euros ($6.6 billion) in cash and plans to use the proceeds for a special dividend and to pay off debt.

The German company said in a statement on Sunday that the agreed deal, which analysts expected to fetch around 4.8 billion euros, was subject to regulatory approval and was expected to close in the second half of this year.

“We have achieved a very good price. We are very pleased,” Merck Chief Executive Karl-Ludwig Kley told reporters.

A Merck spokeswoman told Reuters that the company “wants to use the proceeds to pay off debt”, which piled up following its 10.2 billion euro purchase of Swiss biotech firm Serono last year.

Merck’s net debt stood at 5.5 billion euros at end-March.

With 2006 sales of 1.8 billion euros, Merck’s generics unit ranked fourth in the world behind Israel’s Teva Pharmaceutical Industries TEV.O TEV.TA, Swiss Novartis AG’s NOVN.VX Sandoz unit and U.S. Barr Pharmaceuticals Inc. BRL.N.

Kley said the company would regain its financial flexibility following the sale of the generics business, which has a book value of less than one billion euros.

“This transaction will allow Merck to focus its resources on further growth within its Pharmaceuticals and Chemicals business sectors,” he said, adding investors can expect a dividend from the deal, as in the past deal at the company.

GLOBAL FOOTPRINT

Mylan said in a separate statement that the combination would create “a vertically and horizontally integrated generics and specialty pharmaceuticals leader with a diversified revenue base and a global footprint.”

On a pro forma basis, the combined company would have had revenues of about $4.2 billion and a gross profit, or EBITDA, of about $1.0 billion in 2006, Mylan said.

At 4.9 billion euros, Mylan is paying about 2.7 times last year sales of the generics unit, roughly the same multiple that Germany’s Stada (STAGn.DE) paid for Hemofarm last year and higher than Barr’s acquisition of Pliva at 2.5 times.

    Mylan, which is suspending its dividend, said Merrill Lynch MER.N, Citigroup (C.N) and Goldman Sachs (GS.N) would help finance the deal, and it would issue up to $2 billion of equity and equity-linked securities to lower its debt in the near term.

    The generics business of Merck, which operates in 90 countries, makes branded drugs like EpiPen for treatment of life-threatening allergic reactions, and DuoNeb for treatment of smokers’ lung.

    The global generic, or non-patented, drugs business has seen a wave of mergers and acquisitions recently, as companies seek increased scale and geographical reach.

    The Merck business, which is no longer core to the German firm after its acquisition of Serono, is seen as a prized asset because of its foothold in many markets. It was sold debt free.

    Teva, with sales of $8.4 billion in 2006, had been among the potential buyers of Merck’s generics business. It said in a statement on Sunday that it stopped pursuing a deal because the terms did not fully meet its investment criteria.

    Iceland’s Actavis ACT.IC, another prospective buyer, pulled out earlier this month, saying the price was too high.

    Merck shares, among the frontrunners to join Frankfurt's DAX top-30 index .GDAXI -- replacing chemicals group Altana ALTG.DE -- when the next index revision is carried out in June, closed at 98.19 euros on Friday.

    Mylan shares closed at 22.40 euros in New York on Friday.

    Additional reporting by Noah Barkin in Berlin and Steven Scheer in Jerusalem

    0 : 0
    • narrow-browser-and-phone
    • medium-browser-and-portrait-tablet
    • landscape-tablet
    • medium-wide-browser
    • wide-browser-and-larger
    • medium-browser-and-landscape-tablet
    • medium-wide-browser-and-larger
    • above-phone
    • portrait-tablet-and-above
    • above-portrait-tablet
    • landscape-tablet-and-above
    • landscape-tablet-and-medium-wide-browser
    • portrait-tablet-and-below
    • landscape-tablet-and-below