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Teva to buy Ratiopharm for nearly $5 bln
1:08pm EDT
* Teva pays 3.7 bln euros to get top spot in Europe
* Outbids Pfizer by more than 100 mln euros - sources
* Deal to boost earnings within three quarters of closing
* Teva shares up 3.3 pct
* Eyes now on implications for Stada, Phoenix
By Ludwig Burger and Tova Cohen
COLOGNE/TEL AVIV, March 18 (Reuters) - Israel's Teva won the battle for generic drugmaker Ratiopharm, paying 3.7 billion euros ($5.1 billion) to fix its weakness in Germany, the world's second-largest generics market.
Teva, which beat rival bids from U.S. drugs powerhouse Pfizer and Iceland's Actavis, said the combined company would have had 2009 revenue of $16.2 billion, compared with Teva's own sales of $13.9 billion.
Already the world's generics market leader, Teva now becomes No.1 in Europe, ahead of Novartis's generics unit. The deal also boosts its presence in Spain, Italy and France.
Europe will account for around a third of sales, up from under a quarter that Teva has now.
The deal marks a coup for Teva CEO Shlomo Yanai, a former army general who headed the Israeli security delegation to peace talks at Camp David, Shepherdstown and Wye River.
Put on the block by Germany's Merckle family as its business empire crumbled, Ratiopharm vies with Stada for second place among Germany's generics makers, trailing Novartis's Hexal business.
Shares of Teva, Israel's largest company with a market value of about $57 billion, ended the session in Tel Aviv up 3.25 percent at 231.80 shekels and in New York were up 3.8 percent at $62.15 at 1648 GMT.
"Strategically, it's a great deal," said Steven Tepper of brokerage Harel Finance in Israel.
"It's already a leader in the U.S. and this will establish its leadership also in Europe, and the only way Teva can reach its objectives for 2012 and 2015 is through this kind of deal."
Under non-U.S. GAAP accounting rules, the deal would immediately add to Teva's earnings per share, the buyer said.
Ratiopharm owner VEM, a Merckle family holding company, said the deal -- the biggest takeover of a copycat drugmaker since Teva's $7.5 billion purchase of U.S. rival Barr in 2008 -- would leave it free of debt.
The purchase price of roughly 2.2 times sales is a sharp discount to the 3.6 times Teva had paid for Barr and multiples of 3-4 times typical for the sector, analysts said.
"In our view, this valuation would seem to insulate Teva to some degree from further price degradation in the German generic market," J.P. Morgan analysts said.
The deal will push Teva, currently No.4 in Germany's generics market, into second place, behind Novartis' Hexal business.
Teva's rather weak presence in Germany means few businesses overlap and therefore there would be minimal divestments to comply to with antitrust rules, Teva CFO Eyal Desheh told reporters.
"It's a very good fit for Teva, and the market will view it positively," said Gilad Sarig, an analyst at Bank Hapoalim.
"I think Teva will have to adjust its long-term strategy (to more than double revenue to $31 billion by 2015) in the wake of this acquisition. I think Teva will raise its forecast for the coming years," he added.
Credit Suisse has said a takeover would move Teva's global generics market share to around 19 percent, widening the gap over No. 2, Novartis's Sandoz unit, at about 11 percent.
SYNERGIES
Teva said it expected to capture synergies of at least $400 million within three years of the deal, which it said would add to earnings within three quarters of closing.
The deal reduces its reliance on Copaxone, the most commonly used multiple sclerosis drug, which accounts for 20 percent of group sales.
CFO Desheh said the purchase would be financed from $3 billion in cash it held and $2 billion from lines of credit.
Teva outbid Pfizer by more than 100 million euros, several sources told Reuters.
Pfizer CEO Jeff Kindler, used to getting his way on acquisitions, will now likely train his sights on German generic drugmaker Stada, sources told Reuters earlier.
Stada shares rose as much as 2.5 percent and ended the session down 1.04 percent at 29.095 euros.
Using the Ratiopharm price tag as a guide, Pfizer would have to stump up about 3.3 billion euros for Stada, based on deal value, including assumed debt, as a multiple of 2009 core profit, a premium of 21 percent over the current market value.
Martin Mackay, Pfizer's head of research and development, told Reuters the U.S. group was committed to building up generics as part of its diversification strategy after acquiring Wyeth last year.
"We have a wonderful brand name. We're known for our quality and we're known for our integrity, so ... it's a very smart thing to do," he said.
Industrial heir Ludwig Merckle put Ratiopharm up for sale as part of concessions made by his father Adolf Merckle, who threw himself in front of a train in January 2009 shortly after ceding control of his business empire to its creditors.
Ludwig Merckle called the sale "a painful step" but one that had found a good new home for the business.
The Ratiopharm money looks set to let the Merckle family hold on to Phoenix, Europe's second-largest drugs distributor.
Ludwig Merckle recently turned down offers for Phoenix, even though his creditor banks had tried to persuade him to consider them, sources close to the matter said.
A recovery in financial markets helped Merckle raise more than 2 billion euros by selling a majority stake in HeidelbergCement. He also raised more than 400 million euros from selling Ratiopharm's Swiss sister company Mepha to U.S. drugmaker Cephalon.
Commerzbank and Royal Bank of Scotland managed the Ratiopharm sale. Goldman Sachs advised Teva.
http://www.reuters.com/article/idUSLDE62H25F20100318
