Swiss drug firm buys Germany's Hexal and US counterpart in $5.65bn takeover
Novartis is new generics giant
February 22, 2005
Basel - The Swiss pharmaceutical group Novartis said yesterday it had bought the German firm Hexal and its US counterpart Eon Labs in a $5.65 billion (R33.46 billion) takeover deal aimed at making it the world's top generics maker.
The group had signed "definitive agreements" to take over 100 percent of Hexal and buy a 67.7 percent stake in Eon Labs, a US generics company that had a strategic partnership with the German firm, Novartis said in a statement.
The group said it would become "the global leader" in generics - cheaper non-branded medicines where the patent rights have lapsed - following the takeover, with combined sales of $5.1 billion, based on 2004 data.
"Generic drugs are crucial to meeting the healthcare needs of patients in industrialised and developing countries as cost pressures continue to mount due to the ever-increasing demand of an ageing population," said Daniel Vasella, the Novartis chairman and chief executive.
Novartis said it would launch a tender to buy the remaining stake in Eon at $31 a share, which is equivalent to about $989 million for the package of $31.9 million shares.
It is aiming for cost savings through synergies of $200 million within three years of finalising the overall cash deal, and half within a year.
Novartis hopes to combine the geographical spread and marketing power of its existing generics arm, Sandoz, with Hexal's product development ability and its position in Germany - the second-largest generics market - and Eon's spacialisation in complex generics manufacturing.
"The combination of Sandoz with Hexal and Eon Labs offers an outstanding opportunity to capitalise on the unique strengths of each company," said Sandoz chief executive Andreas Rummelt.
Novartis said it would "significantly strengthen" its technological ability beyond generics by acquiring know-how on skin patches, inhalation products and sustained release implants.
Twin brothers Andreas and Thomas Struengmann, the founders of Hexal, will take senior regional executive posts in the expanded Sandoz.
Vasella is seeking to increase sales at Novartis's Sandoz generics unit, the company's slowest-growing division in 2004.
With the acquisition, Novartis will surpass Israel's Teva Pharmaceuticals Industries as the biggest maker of generic medicines.
"The generics area was a problem for Novartis and with this acquisition they have resolved that problem with a quantum leap," said Dieter Winet, a portfolio manager for Swisscanto Asset Management.
Novartis shares have risen 2.8 percent in the past 12 months, compared with a 6.2 percent rise in the Bloomberg Europe pharmaceutical index of 17 drug maker stocks.
Santo Holding, the investment company that manages the Struengmann brothers' holdings, is a majority shareholder of Eon, and Thomas is the chairman of its board of directors.
Novartis's tender offer for the rest of Eon is 11 percent more than the Friday closing price of Eon's shares.
Eon shares traded at $30.57 yesterday in Frankfurt after closing at $27.92 in New York on Friday.
The combined company plans to introduce 70 products in the US and Germany in 2005.
Between 2002 and 2007, pharmaceutical companies including GlaxoSmithKline and London-based AstraZeneca would have lost patent protection on products worth an annual $82 billion in sales, according to London-based industry consultant Datamonitor.
Novartis's net income in the fourth quarter rose 1 percent, the slowest profit growth in five quarters, because of costs for a legal settlement and restructuring at Sandoz.
Unlike larger competitors such as Pfizer and Glaxo, Novartis has been building up its generic drug business.
Sales at Sandoz grew 5 percent in 2004, compared with 15 percent for Novartis's brand-name drugs.
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