Teva's Yanai: The price is right

"Buying Ratiopharm makes us number 1 in Europe."

"It has been a long process, and we feel great satisfaction that we have bought a company that holds very many advantages for Teva and our strategy for the coming years," Teva CEO and president Shlomo Yanai told "Globes" today about the acquisition of German generic drugs comany Ratiopharm. "The price is right, and it meets Teva's three criteria when carrying out acquisitions: strategic fit, good economic numbers with many synergies, and accretion to profit, which will happen within three quarters, not even a year. By every economic criterion by which we examine acquisitions, we paid the right price."

Ratiopharm is not considered an especially efficient company, and it has a problematic costs structure, even though it has shed hundreds out of the 5,600 strong workforce it had at the end of 2008.

Yanai: "Ratiopharm is an excellent company. Our due diligence was long and deep, and this is a very efficient company, professionally, with a very impressive management team. The acquisition will make us the number one generics company in Europe, and number two, by a small margin from the leader, in Germany. I believe we'll put that right too in time." Yanai says that no undertakings were given about employing or laying off workers as part of the bid. "We think there is excellent potential here for our ability to expand our infrastructure in Europe," he says.

Ratiopharm was put up for sale last year, after its controlling shareholder, Adolf Merckle, committed suicide because of financial losses. The auction for the sale of the company was conducted by its two largest creditor banks: Commerzbank and Royal Bank of Scotland. Teva, which in previous acquisitions was advised by the now defunct Lehman Brothers, was advised by Goldman Sachs this time round.

At the beginning of the auction process, the name of just about every pharmaceuticals company and investment fund was connected with it, but three stubborn bidders reached the final straight: Teva, US giant Pfizer, and Actavis, a generic drugs company based in Iceland.

Pfizer, which develops original drugs, wanted Ratiopharm in order to bolster its generics activity, with important patents about to expire, and its need to find new growth engines. Actavis, which itself is in debt, was backed by Deutsche Bank, its creditor, and planned to merge with Ratiopharm and even go for a flotation further down the line. In the end, Teva was the most determined, and it took the spoils.

For Teva, the world's largest generic drugs company, the significance of acquiring Ratiopharm is that it gains a foothold in Germany, a large pharmaceuticals market in the midst of change. In January, Teva presented its strategic pan for the coming years, and in its presentation it mentioned that Germany was the largest generic drugs market in Europe and the second largest in the world. However, it added that the German market was expected to shrink by 3% a year between 2009 and 2015.

In contrast to other important European countries, such as the UK, Holland, and Italy, where Teva s the biggest player in the market, in Germany it is only one of five large companies, and it will considerably improve its position with this acquisition. Teva's position there used to be even worse, but its presence grew when it acquired Barr. A few years ago, Teva bid for the generics business of German company Merck KGaA, but that went to Mylan, which paid $6.7 billion.

"The German market is the second biggest in the world, $8.8 billion," Yanai points out. "The market divides into three-quarters branded generic drugs, with some degree of advertising, and there Ratiopharm is number two. In over the counter drugs, Ratiopharm is number one in Germany. Another quarter of the market is the famous tenders, and Ratiopharm has fine achievements to its name there. It is well positioned in both segments."

If Ratiopharm is valued at $5 billion, that makes it about 10% the size of Teva, which has a market cap of $53 billion. On the basis of 2009 figures, the sales multiple in the deal is 2.3, lower than the multiple in the Barr acquisition and in other deals in the industry.

"Ratiopharm has a portfolio of more than 500 molecules in Europe," Yanai says. "Thanks to this acquisition, we will be able to grow and even multiply our sales in important countries in Europe, such as France, Spain, and Italy. After the acquisition, we will be number one in ten countries in Europe, and in the top three in 17 countries."

Teva has $2.2 billion cash, and over the past year it has repaid the bridging loans it took for the Barr purchase. The acquisition of Ratiopharm is in line with the goals Teva set out in its strategic plan, in which it spoke of sales of $9 billion in Europe in 2015, compared with $3.3 billion in 2009.

Teva says Ratiopharm will contribute to earnings per share within three quarters of eh deal being closed, and that it expects to realize synergies of at least $400 million within three years. When Teva bought Barr, it projected synergies of $300 million, which rose to $500 million when integration was completed.

Published by Globes [online], Israel business news - - on March 18, 2010

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

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018