Abbott to Buy Solvay Drug Unit for $7 Billion
Abbott to Buy Solvay Drug Unit for $7 Billion
Abbott to Buy Solvay Drug Unit for $7 Billion
Abbott Laboratories has struck a deal to acquire the pharmaceutical unit of Belgian conglomerate Solvay SA for roughly €4.8 billion ($7 billion), in another sign of the consolidation of the drug industry.
Abbott will pay €4.5 billion now in the all-cash deal and up to €300 million between 2011 and 2013 if the business hits certain targets.
Abbott sees Solvay as a way to expand into emerging markets in Eastern Europe and Asia, where Abbott had limited presence, while adding new drugs for hypertension and Parkinson's disease. It is the biggest deal Abbott has done since 2002.
"The proceeds from the divestment will be reinvested in external and organic growth with a sharp focus on long term value creation," said Solvay Chief Executive Officer Christian Jourquin, adding that the focus will be on geographical regions that offer strong growth potential.
The deal also gives Abbott full control of two drugs for cholesterol and triglycerides that Abbott and Solvay already sell together -- Tricor and Trilipix.
Abbott executives said the deal will diversify the company's product lineup, expand its presence in emerging markets, beef up its pipeline of experimental drugs and give Abbott an entry into the vaccines market. They also said the deal was attractive financially -- Abbott is using cash on hand to finance the purchase and it should add to earnings from the start. And Abbott sees the potential to cut costs in the Solvay business, whose expenses run higher than Abbott's as a percentage of sales.
"This is a significant business that will further diversify sources of our pharmaceutical growth," Abbott Chief Executive Miles White told analysts on a conference call.
Solvay also sells hormone treatments and has a small flu-vaccine business -- a hot area in the drug industry as concern mounts about flu pandemics. In a news release in early September, Solvay said it had begun producing small batches of vaccine for the H1N1 swine-flu virus, which it planned to test in studies. Abbott may be hoping to boost investment in that business to take advantage of the current desire of many countries to buy H1N1 vaccine, though it is unclear how quickly Solvay's factories could produce it in large quantities.
Abbott will pay for the deal from existing cash on hand and won't go to the markets to raise acquisition financing, said a person familiar with the matter.
For Solvay, the sale will enable it to narrow its focus and invest more in the two other areas where it already gets more revenue, chemicals and plastics.
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