The months-long battle to buy the generics unit of Merck KGaA is finally over and the winner is the USA’s Mylan Laboratories, which will pay out some 4.9 billion euros in cash for the division.
Though Teva Pharmaceutical Industries was seen as the favourite to come up with a winning bid, Mylan has dug deep to propel itself into the top three generics companies, along with the Israeli-headquartered firm and Novartis’ Sandoz unit, and to establish a strong presence outside the USA. Under the terms of the deal, it will acquire 100% of the shares of the various businesses comprising Merck Generics for 4.9 billion euros, having secured “fully committed debt financing” from Merrill Lynch, Citigroup and Goldman Sachs.
Mylan’s own market capitalisation is considerably less (around $4.94 billion) than the $6.7 billion it is shelling out for the Merck unit, but as well as securing the aforementioned financing, it will also look to reduce debt in the near term by issuing $1.5-$2 billion in equity and securities. Mylan will also suspend the dividend on its common stock and added that the transaction is anticipated to be dilutive to cash earnings per share in year one, “breakeven in year two, and significantly accretive thereafter”.
It expects to achieve synergies of approximately $250 million by the end of the third year and this should be achieved without “significant reductions in headcount”. The deal is expected to close in the second half of this year.
Buying price at top of analysts’ estimates
Merck was understandably pleased with the price-tag which was right at the top of the range of analysts’ estimates. “A combination with Mylan represented the most convincing strategy for our generics business,” said chairman Karl- Ludwig Kley, who claimed that the acquisition “offers great
opportunities for long-term growth and a bright future” for the unit’s employees. “The people aspect played an important role in our decision-making,” he added. It is also going to help the Darmstadt-based firm tackle the significant debt levels that resulted from its acquisition last year of the Swiss biotechnology company Serono for $13.3 billion.
As for Mylan, chief executive Robert Coury said that the deal helps his firm “substantially complete the execution on one of its long-term visions: to create a world class global quality generics leader.” He added that the “fit between our two companies is truly outstanding,” given that Mylan is already a leader in the US market, and controls one of the broadest active ingredients platforms in the world, through its majority stake in Indian drugmaker Matrix Laboratories. Now, along with Merck Generics, which “provides us with leading positions in many of the world's other key regions…we will form a powerful, diverse, robust and vertically integrated generics platform,” Mr Coury said.
The acquisition gives Mylan leading positions in Australia, France, Japan, Portugal, Spain and the UK, thus reducing the risks associated with over-reliance on any one region, and a portfolio consisting of around 560 products. The new entity will have combined revenues of $4.2 billion and about 10,000 employees.
Mylan will hold a conference call later today to discuss the transaction and Mr Coury is likely to face questions as to whether the firm has paid over the odds. The sums involved saw Iceland’s Actavis pull out of the bidding at a late stage and the 4.9 million euro price-tag may have proved too much of a risk for Teva. The Jersusalem-based firm said that while Merck's generics business would have been a strategic fit, “Teva’s long-held practice is to only pursue transactions that fit our long-term strategy of delivering profitable growth and enhancing our global leadership position while meeting our stringent financial criteria.”