Novartis has moved to become the world's biggest generic drugs maker after it agreed to buy unlisted German firm Hexal and most of US company Eon Labs in a deal worth €5.65 billion.
Novartis has agreed to acquire 100 per cent of Hexal and 67.7 per cent of Eon Labs from Germany's Struengmann family, it said yesterday, giving it a leading position in the major markets for copycat drugs, particularly Germany and the United States.
The Swiss company will launch a tender offer to buy the remaining shares of Eon Labs for $31 per share and merge the two companies into its Sandoz unit, currently the world's No. 2 generics maker. Eon Labs stock closed at $27.92 on Friday.
Novartis's generics unit would have had combined proforma sales of about $5.1 billion in 2004 if the transactions were in place, the Basel-based firm said, compared with $4.8 billion for current world leader Israel's Teva Pharmaceuticals.
Birgit Kuhlhoff, an analyst at Sal Oppenheim, said Novartis was paying a multiple of four times sales and 19.8 times operating earnings for the deal, including the remaining shares in Eon Labs yet to be purchased.
"This is a very expensive acquisition," she said. "The multiples paid are extremely high and I find it strange that they are making acquisitions in exactly those markets where they suffered price pressure."
Novartis shares, flat for the year so far, were indicated a touch lower before the official opening. The stock closed at 57.30 Swiss francs on Friday.
Novartis chairman and chief executive Daniel Vasella has made no secret of his desire to steal the top slot in the global generics market. The firm has already snapped up Slovenia's Lek in 2002 and Canada's Sabex last year.
The deal to buy Hexal and Eon Labs will create cost synergies of $200 million a year within three years of closing, half of which would be realised within 18 months, Novartis said.
Novartis said the transactions would boost earnings within 12 months of closing, which it expects in the second half of 2005 if regulators approve.
Novartis said that it would consolidate various departments as part of the merger.
"The strong growth outlook for Sandoz, which will create jobs is expected to partially compensate for necessary reductions in the work force," the company said in a statement.
Novartis had been widely reported to be in talks to buy Hexal, whose products include a generic version of a cholesterol-lowering drug. It had sales of $1.65 billion last year and commands the number two spot in its domestic market.
Hexal is controlled by the Struengmann family, who also held the 67.7 per cent stake in Eon Labs which Novartis has agreed to buy.
Novartis's offer of $31 per share for the remaining 31.9 million Eon Labs shares represents a 25 per cent premium over the share price of $24.75 before media speculation about a takeover started to drive up Eon Lab's stock price this month, Novartis said.