Teva buys Ratiopharm

Frank Siebelt and Ludwig Burger

Israel's Teva has won the battle for German generic drug maker Ratiopharm, paying an enterprise value of €3.625-billion to fix the industry leader's weakness in the world's second-largest generics market.

Teva, which beat U.S. drugs powerhouse Pfizer and Iceland's Actavis in the race for Ratiopharm, said the combined company would have had 2009 revenues of $16.2-billion, up from Teba's own sales of $13.9-billion.

Put on the auction block by Germany's Merckle family as its business empire crumbled, Ratiopharm vies with Stada for second place among Germany's generics makers, trailing Swiss drug major Novartis's Hexal business.

None of the other companies have yet commented on the deal.

Ratiopharm's last three suitors, whittled down from about a dozen in November, had until Thursday to submit final bids, several sources had said.

Teva, number four in Germany's generics market, will jump straight to the top spot with Ratiopharm in its stable.

“It's a very good fit for Teva, and the market will view it positively,” said Gilad Sarig, an analyst at Bank Hapoalim. “Teva would have liked to get it for less, but it had competitors.”

Analysts at Credit Suisse have said a takeover would move Teva's global generics market share to around 19 per cent, widening the gap over No. 2, Novartis's Sandoz unit, at about 11 per cent.

Potential synergies that Teva may capture could be at least in the $100-$150-million range, said Jefferies analyst David Windley in a Feb. 4 note.

The deal would also reduce Teva's reliance on Copaxone, the most commonly used multiple sclerosis drug, which accounts for 20 per cent of group sales.

“We anticipate Teva would be able to achieve manufacturing/raw material synergies as well as tax advantages from Ratiopharm,” JP Morgan analyst Chris Schott wrote in a March 8 research note.

The deal could add 3-5 per cent to earnings per share in the long term, Schott said, assuming then that the deal would cost Teva about €3-billion.

Israel's Teva has said it plans to more than double global sales and almost triple sales in Europe by 2015, a venture analysts say would require acquisitions worth $15-billion.

Pfizer chief executive officer Jeff Kindler, used to getting his way on acquisitions, will now likely train his sights on German generic drug maker Stada, sources told Reuters earlier.

Using the Ratiopharm price tag as a guide, Pfizer would have to stump up at least €3.2-billion for Stada, based on deal value including assumed debt as a multiple of 2009 core profit, a premium of 18 per cent over the current market value.

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.

The Ratiopharm money looks set to let the Merckle family hold on to Phoenix, Europe's second-largest drugs distributor.

Ludwig Merckle has 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.

Commerzbank and Royal Bank of Scotland managed the Ratiopharm sale.