Chattem to buy 5 J&J, Pfizer brands, shares soar

Chattem to buy 5 J&J, Pfizer brands, shares soar

Chattem to buy 5 J&J, Pfizer brands, shares soar

Chattem Inc. on Friday said it plans to pay $410 million for the U.S. rights to five brands, including anti-diarrhea drug Kaopectate, from Johnson & Johnson and Pfizer Inc. as the drug makers try to satisfy regulatory requirements for their own looming deal.

Shares of Chattem, a small consumer products maker with brands like Gold Bond, soared 26 percent in early trading.

Brean Murray analyst Gary Giblen said the deal was "a positive surprise" for Chattem, since no divestiture opportunities had been expected from J&J's acquisition of Pfizer's consumer health-care business.

The deal comes a day after Chattem shares fell 3.9 percent amid concerns that the company's Selsun Blue dandruff shampoo may be pressured by a new competing line from consumer products powerhouse Procter & Gamble Co.

Giblen raised his rating on Chattem to "buy" from "hold." He called concerns about P&G's new Head & Shoulders Intensive Solutions dandruff shampoos "flaky."

Chattem said the brands it plans to buy have combined annual revenue of $115 million. In fiscal 2005, Chattem's total revenue was $279.3 million.

J&J announced plans to buy Pfizer's consumer health-care business for $16.6 billion back in June, giving it well-known brands like Listerine. But J&J's portfolio already included brands like Act fluoride mouth rinse, one of the brands Chattem will buy.

Chattem said its agreement was subject to regulatory review and certain closing conditions, including the completion of J&J's purchase of the Pfizer business, expected by year-end.

Other brands Chattem plans to buy are sleep aid Unisom, anti-itch salve Cortizone and Balmex diaper rash treatment.

Act and Balmex are J&J brands, and Cortizone, Kaopectate and Unisom are owned by Pfizer. Chattem said the brands were being divested in connection with the J&J-Pfizer deal and certain regulatory requirements related to that acquisition. It did not comment on why these specific brands were being divested.

Chattanooga, Tennessee-based Chattem said the deal will add to its earnings in fiscal 2007.

SunTrust Robinson Humphrey lowered its earnings and revenue targets for Chattem on Thursday, citing increased competition from P&G's new medicated Head & Shoulders line.

SunTrust's Bill Chappell maintained his "neutral" rating on Chattem and said the shares may have a "psychological overhang" now that the company competes directly against P&G in two of Chattem's major categories. Besides going head to head in dandruff shampoo, Chattem's Icy Hot brand topical pain relief brand battles P&G's ThermaCare.

Shares of Chattem, which is expected to report quarterly results on October 10, jumped as high as $43.37 in early Nasdaq trading, their best level since August 2005. They were last up $6.05, or 17.6 percent, at $40.48. Through Thursday, the shares had fallen 5.4 percent this year.

J&J and Pfizer shares were down less than 1 percent.

To fund the acquisition, Bank of America has provided a commitment letter for a $425 million term loan facility for Chattem. Merrill Lynch & Co. is acting as Chattem's financial adviser.

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