26 July 2004 00:01 [Source: ICB Americas]
Bayer has agreed to acquire Roche’s business in over-the-counter (OTC) medicines only days after deciding to spin off its Lanxess che-micals operation to shareholders rather than having an initial public offering (IPO).
Under the deal, Bayer will pay €2.4 billion ($2.9 billion) for both the Roche OTC business and Roche’s share in Bayer-Roche LLC, a 50-50 OTC joint venture in the US. Roche’s OTC sales amounted to SFr1.6 billion ($1.3 billion) last year.
The merged Bayer/Roche OTC business will be among the top three global operations in non-prescription drugs with total sales of €2.4 billion.
The management board of Bayer is thought to have decided on the Lanxess spinoff prior to announcing the Roche OTC acquisition to avoid uncertainties in the financial market about how it would finance the takeover. The move helped Bayer to retain an “A” rating among credit rating agencies.
Bayer senior executives have stated that by pursuing a spinoff to shareholders rather than an IPO, net debt of around €1.5 billion, including pension liabilities, would be transferred to Lanxess. This reduction in group debt, which amounted to €6.6 billion at the end of March, will now help pay for the Roche takeover.
“The company could well have the same level of debt at the end of next year as at the end of this year despite this acquisition,” says a Munich-based analyst. “The Lanxess spinoff will cut its debt by €1 billion after excluding pension liabilities. Then the planned divestment of its plasma activity will bring in €400 million, and most of the rest will come from free cash flow.”
Bayer ruled out an IPO for Lanxess because of current conditions in the European financial markets, where IPOs have been recently abandoned or their valuation sharply marked down. Cash from the sale would have helped fund the acquisition.
The combined Bayer and Roche operation will have its global headquarters at Morristown, N.J., and the European headquarters in the Basel area of Switzerland.
The merger will bring together Bayer’s long-established brands of Aspirin and Alka-Seltzer with Roche’s Rennie, Aspro, Saridon and Redoxon, which were launched between 70 and 90 years ago.
“It is our intention to further strengthen Bayer’s OTC business to become [the] world leader, and with this acquisition we make another large step towards that goal,” says Werner Wenning, Bayer’s chairman.
“The acquisition provides growth and attractive profit margins in an interesting and fast developing part of the health care market—one that is characterized by increasing consumer interest in overall health and self-medication,” he notes.
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