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Mylan acquires Merck Generics Unit for EUR 4.9bn

Mylan Laboratories has purchased German-headquartered Merck KGaA's generic-drug unit for EUR 4.9 billion in cash.

US generics firm, Mylan Laboratories, has purchased German-headquartered Merck KGaA's generic-drug unit for EUR 4.9 billion (USD 6.7bn) in cash.

The purchase will make Mylan the world's third-largest generic drug manufacturer. The offer is more than Mylanís own market value, while Merck KGaAís annual sales are almost double that of Mylan, who fought off the worldís largest generics manufacturer, Israel-headquartered Teva.

The acquisition will now allow the company to sell AstraZenecaís Prilosec (omeprazole) antacid, as well as Merck & Co's lipid lowering blockbuster, Zocor (simvastatin).

According to Bloomberg analysts, Mylan's offer values the Merck unit at 14.6 times FY06 earnings before interest, tax, depreciation and amortisation and 2.7 times sales.

There has been mixed reaction to the deal, with Cowen & Co analysts saying Mylan will be under pressure until visible and measurable successes are achieved.

Mylanís shares fell 14.8 per cent after the announcement on the weekend. According to investors at Natexis Bleichroeder, shares were hit because the deal surprised investors who thought Teva Industries would win the bid for the Merck unit.

Mylan said it would save USD 250m three years after the acquisition, which will dilute FY07 earnings. IBI Investment House analysts said that the acquisition of would affect Teva, as the Israeli firm would encounter a stronger rival with marketing activities in 90 countries.

IBI added that Mylan would struggle due to the sheer expense of the acquisition and concluded that the acquisition was a negative development for the generics industry, which is undergoing consolidation and experiencing the resulting economies of scale.

The acquisition is Mylanís second major recent buy out, the first being India-based API manufacturer Matrix Laboratories in 2006. This gave the company its first foothold outside the US generic market and access to cheaper manufacturing.

Geographical expansion is said to be common factor behind both acquisitions. Mylanís strategy will ensure enhanced market presence when blockbuster patents expire over the next few years and to offset growth restrictions resulting from the over-saturated US generics market.

On 16 May, Credit Suisse Analysts maintained their ìUnderperformî rating on Mylan; the target price is set to USD 22.

17th May 2007

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