Abbott to buy Solvay pharmaceuticals business for 4.5 billion euros, but will bidding war cease?

US health care giant Abbott Laboratories has reached a definitive agreement with the Solvay Group for Abbott to acquire Belgium-based chemicals, plastics and drugs group Solvay's pharmaceuticals business for 4.5 billion euros ($6.6 billion) in cash, providing Abbott with a large and complementary portfolio of pharmaceutical products and a significant presence in key global emerging markets. The transaction also includes payments of up to 300 million euros if certain sales milestones are met between 2011 and 2013. Solvay's shares dropped 3% to 72.42 euros in early morning trading on September 28.

The move comes amid strong indications of interest in the Solvay unit, including an unconfirmed bid of around 4 billion euros from Switzerland's Nycomed and just above that level from fellow Belgium drugmaker Solvay, as well as a rumored offer from Japan's Takeda, leaving room for speculation about an ongoing bidding war for this business.

The Abbott acquisition, which is expected to close in the first quarter of next year, also includes full global rights to the fenofibrate franchise, the active ingredient for cholesterol drugs TriCor and TriLipex, for which it already has US marketing rights to and pays royalties to Solvay. TriCor generated $1.34 billion in revenue for Abbott last year.

Will add $3 billion of sales to Abbott

Solvay Pharmaceuticals will add more than $3 billion in annual sales, the majority outside the US Solvay has significant presence and infrastructure in key high-growth emerging markets, including Eastern Europe and Asia. Emerging markets are growing faster and increasing in importance due to demographics, rising incomes and expanded treatment of chronic disease, the US firm notes. The acquisition will also add approximately $500 million to Abbott's annual pharmaceutical R&D investment, providing the opportunity to further accelerate near and long-term pharmaceutical growth, says Abbott.

"The acquisition of Solvay Pharmaceuticals further diversifies our pharmaceutical portfolio, expands our presence in key high-growth emerging markets, enhances our investment in R&D and accelerates our long-term earnings-per-share growth outlook," said Miles White, chairman and chief executive of Abbott.

Solvay's pharmaceutical portfolio complements Abbott's presence and expertise in specialty markets such as cardiovascular disease, neuroscience and gastroenterology. Solvay has treatments for Parkinson's disease, Meniere's disease (abnormality of the inner ear), vertigo and irritable bowel syndrome. Solvay also offers products to treat men's and women's hormonal health, and exocrine pancreatic insufficiency (inability to properly digest food), which is associated with several underlying conditions including cystic fibrosis and chronic pancreatitis.

The acquisition also includes Solvay's vaccines business, which will provide Abbott entry into the expanding global vaccines market. Solvay has a small molecular diagnostics unit that will become part of Abbott's diagnostics organization upon the transaction close.

"Abbott's international pharmaceutical business has grown significantly over the past several years, driven by specialty products in developed markets," said Olivier Bohuon, executive vice president, Pharmaceutical Products Group, Abbott. "In emerging markets where chronic disease is being treated more aggressively, the combined Abbott and Solvay portfolio of branded generics expands the global reach of these medicines. Solvay's business will also give us a platform to enter the attractive global vaccines market," he added.

Financial highlights

The deal will be approximately $0.10 accretive to Abbott's ongoing earnings per share in 2010, accelerating to more than $0.20 by 2012, increasing thereafter, all before one-time transaction-related items, which will be provided at a later date. These one-time transaction-related items are expected to occur between 2010 and 2012. Abbott plans to fund the acquisition with cash currently on the balance sheet.