Mylan, Abbott in $5.3-billion branded generics deal

Mylan entered a definitive agreement to acquire Abbott's developed markets branded generics unit in an all-stock transaction valued at approximately $5.3 billion, the companies announced Monday. Mylan executive chairman Robert J. Coury remarked "the acquisition of this business is absolutely the right next strategic transaction for Mylan as it builds on our strong momentum [and] expands and further diversifies our business in our largest markets outside of the US."

According to Mylan, the deal includes more than 100 of Abbott's specialty and branded generic drugs across the therapeutic areas of cardio/metabolic, gastrointestinal, anti-infective/respiratory, CNS/pain and women's and men's health. Mylan indicated that the products, which include Creon, Influvac, Brufen, Amitiza and Androgel, and are sold in Europe, Japan, Canada, Australia and New Zealand, are expected to provide approximately $1.9 billion in additional annual revenue. The business being acquired currently has about 3800 employees, with a sales organisation of approximately 2000 staff. Mylan noted that the transaction also includes two associated manufacturing facilities in France and Japan.

Mylan noted that the transaction, which has been unanimously approved by its board and is expected to close in the first quarter of 2015, will double its revenues in Europe by boosting the company's presence in Italy, the UK, Germany, France, Spain and Portugal. The drugmaker said the deal is also expected to more than double sales in Canada and Japan, and build on Mylan's business in Australia and New Zealand. Mylan added that the purchase will also give it "a meaningful presence" in the specialty and branded generics market in Central and Eastern Europe.

JPMorgan Chase & Co. analyst Michael Weinstein said the agreement could be a win for both companies. Weinstein noted that Abbott will get cash for its eroding European drug business and raise the growth prospects of its remaining units, while Mylan will get a lower tax rate. Sources recently suggested that the companies were in late-stage negotiations regarding a transaction.

Mylan CEO Heather Bresch said the company didn’t have an option when it came to moving its tax base abroad as other companies had already taken this decision. "We're the last in our sector to have announced an inversion or to be domiciled outside the US," Bresh noted, adding the move "gives us a very competitive landscape to pursue other opportunities." Mylan indicated that the deal will add 25 cents per share to earnings in the first year and generate $200 million in savings three years after it is concluded. Bresch said the company plans to use its cash to quickly build out its European business and will keep much of Abbott's existing infrastructure. "It really opens up complimentary assets and companies in those markets," she said, noting "we didn’t have the infrastructure in these countries. We absolutely see synergies, but we will certainly be using most of that infrastructure."

Under the deal, Abbott will transfer the assets to a new public company organised in the Netherlands, with Mylan subsequently merging with the new entity. Abbott will receive 105 million shares of the new company, representing an ownership stake of around 21 percent. Mylan noted that it will continue to be led by its current leadership team and maintain its headquarters in Pittsburgh, PA.

Abbott CEO Miles D. White said that following the transaction, the company's remaining "branded generics pharmaceuticals business will focus on emerging markets, where demographic changes and increasing access to healthcare are expected to drive sustainable growth." The company noted that its retained branded generics business generated revenue of $2.9 billion in 2013 and is expected to have sales growth in the upper-single to double digits. Abbott added that it "does not expect to be a long-term shareholder in Mylan," and will use the proceeds from the transaction for "opportunities that would be accretive to earnings over time."

For further analysis, read ViewPoints: Abbott, Mylan pursue a new, more aggressive spin on tax inversion takeouts.

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