Abbott to join bidding for Solvay's pharma unit

As the global financial markets stabilize, the world economy starts recovering and stock markets rally, the pharmaceutical sector, too, is heating up with almost daily deal action. On Wednesday, The Wall Street Journal reported Abbott Laboratories (ABT) has joined the bidding for the pharmaceutical unit of Belgian conglomerate Solvay SA, pitting it against Nycomed AG. Abbott's offer, the WSJ says, could be valued at €4 billion to €5 billion ($5.9 billion to $7.4 billion).

Privately held Swiss drugmaker Nycomed recently put forward an offer to buy Solvay's pharmaceutical unit for between €4 billion and €4.5 billion, according to Dow Jones Newswires sources. Reuters reported the bid was as high as €5 billion. This puts Abbott's bid in strong competition with Nycomed's.

Solvay, a drug-chemical hybrid, wants to sell its pharma business to raise cash for acquisitions in its chemicals portfolio. In April, it said it is was studying options for the unit and hired several firms to advise on the matter, including Morgan Stanley (MS) and Citigroup (C). The strategic review should now be nearly over.

Solvay's drugs unit had €2.7 billion in 2008 sales, much smaller than other hybrid peers such as Bayer and Merck KGaA. Small as it is, though, it has been a stabilizing force during the economic slowdown, offsetting declines in Solvay's other units. However, as the unit is not well funded for proper research, according to analysts, it seems to have limited prospects with patents due to expire on its blockbuster drugs and some setbacks in its pipeline. The unit's sale, then, is seen as a positive as recent activity shows Big Pharma is willing to pay to snap up smaller competitors.

Nycomed is owned by several private-equity firms, including Credit Suisse's (CS) DLJ Merchant Banking. It had annual sales of €3.19 billion in 2008. Together with Solvay's unit, the company would have €6 billion in annual sales. Interestingly, the financing suggested for the deal would be in the form of high-yield bonds -- the first takeover to be funded by "junk" bonds since the financial crisis began.

For Nycomed, whose biggest and main drug is heartburn treatment Pantoprazole, acquiring the similar-sized Solvay unit could bring about large cost savings and increase its exposure to emerging markets, as well as offer a complementary portfolio of drugs with similar-sized markets.

Earlier, both Abbott and Takeda Pharmaceutical explicitly stated they were not planning a bid. Now it seems Abbott has changed its mind and made an offer.

So far, Abbott has generally shied away from big acquisitions, with two recent purchases around the $400 million mark. But it has been on the prowl lately and this would mark perhaps a change in direction. It was back in 2001 that Abbott purchased anything that large when it acquired Knoll Pharmaceuticals from BASF AG for $6.9 billion.

Abbott and Solvay already co-market cholesterol-lowering TriCor and the recently approved Trilipix. Abbott reported $1.34 billion in sales of the two in 2008. But TriCor and another drug, testosterone-replacement drug AndroGel (Solvay reported648 million -- about $950 million -- in sales for female and male hormone treatments drugs in 2008), are set to lose patent soon. Solvay also sells drugs for hypertension and Parkinson's disease.

While Solvay might gain from the heightened interest, the competition could prove expensive to the buyer. Solvay's board is scheduled to meet Friday, and a deal could be reached soon after that, the WSJ reports.

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