Teva buys Germany's Ratiopharm for $4.9b

Teva CEO Shlomo Yanai: This transaction is perfectly aligned with our long-term strategy in which Europe is an important pillar and growth driver.

Generic pharmaceuticals giant Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA)will buy German generic pharmaceuticals company Ratiopharm.

Teva's winning offer was about €3.625 billion, or $4.9 billion.

The bidding for Ratiopharm ended today.

Ratiopharm has annual sales of about $8.6 billion. US pharmaceuticals giant Pfizer and Iceland-based Actavis were among the bidders in the final round, but Teva beat their offers.

Teva CEO Shlomo Yanai said, “This is an important acquisition for Teva. This transaction is perfectly aligned with our long-term strategy in which Europe is an important pillar and growth driver. Ratiopharm will provide us with the ideal platform to strengthen our leadership position in key European markets, most notably in Germany, as well as rapidly growing generic markets such as Spain, Italy and France."

The price tag for Ratiopharm reflects an earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 11.4 and a sales multiple of 2.2, based on Ratiopharm's figures for 2009. For the sake of comparison, Teva acquired Barr Pharmaceuticals in 2008 at an EBITDA multiple of 13.2 and a sales multiple of 3.4, and it acquired Ivax Corporation in 2006 at EBITDA multiple of 26 and a sales multiple of 4.1. In short, Teva did not pay a high price for Ratiopharm in comparison with previous acquisitions, apparently because of Ratiopharm's low EBITDA margin.

The acquisition will strengthen Teva's position in the German market, Europe's biggest. This was a goal repeatedly declared by Teva's executives in the past. European sales currently account for less than 25% of its total sales.

Leader Capital Markets analyst Yoav Burgan says, "It should be admitted that the price tag is not very low, but there have been much more expensive M&A deals in the generic drug industry in recent years. Attention will now turn to streamlining Ratiopharm. This is a company with substantial potential, but in my opinion, a lot of work is needed on Teva's part because Ratiopharm needs massive streamlining."

Burgan gives Teva a "Buy" recommendation with a target price of $65.

IBI Investment House analyst Natali Gotlieb says, "Ratiopharm has a 21% share of the German generic drug market. Teva, for the sake of comparison, has only a few percent of this market, where it is the fifth largest company. There are 40-50 drug companies in Germany altogether, most of which are family firms with an aggregate market share of 50%. Within five years, three or four companies will have 60-70% of the German market, and most of the small firms will have to focus on specific niche products, or they will be acquired, or go out of business."

Published by Globes [online], Israel business news - www.globes-online.com - on March 18, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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