Vantage Exclusive - Four rush to table Ratiopharm offers before February 5 deadline

Analysis

The estimated €3bn takeover saga of German generics maker Ratiopharm is drawing to a close with at least four bidders scrambling to formalise offers by a February 5 deadline, according to sources familiar with the situation. Swedish private equity house EQT Partners, Pfizer, Sanofi-Aventis, and Israel’s Teva are still in the auction, the sources said, adding that China’s Fosun Pharma, a much talked about “Chinese bidder”, also remains in the process.

The fact that Sanofi is still in the running comes as a surprise given recent reports claiming the French group had bowed out the race. However, Teva remains the most likely winner especially in light of its own bullish forecasts which will need to be fuelled by acquisitions on this scale to be achieved. Meanwhile rumours that EQT will launch a joint bid with Icelandic generics group Actavis has been rejected by sources close to EQT.

Distressed asset

German industrial holding VEM put Ratiopharm on the block last autumn to help pay off huge debts amassed by the late billionaire, Adolf Merckle, who commited suicide last January. Apart from Ratiopharm, VEM is also selling Swiss generics firm Mepha and is expected to divest German drug distributor Phoenix, though the fate of that process will depend on how much it raises from the Ratiopharm auction.

Investment banks Commerzbank and RBS are managing the sale. At least one buyout firm and three pharma companies remain “strongly interested” in bidding by February 5, the deadline for binding offers, said one source very close to the transaction. They submitted non-binding offers close to €3bn in a first round in November and are currently conducting due dilligence on the asset, he said.

EQT’s blank cheque

The auction’s finale comes after a handful of private equity bidders including a Cinven-led consortium, Warburg Pincus and Apax Partners dropped out of the race after failing to meet VEM’s €2.5bn minimum price tag which would have been hard to finance in the still fragile credit markets.

However, Swedish buyout firm EQT is still in the auction after securing financing from at least three banks including Commerzbank, which has pledged a €1bn loan, according to a banker closely following the situation.

“EQT has the fire power to do this,” he said, adding that it has the backing of the Wallenberg family, one of Sweden’s wealthiest. "They have the family and significant commitments from the banks.” EQT, which has hired Ratiopharm’s ex-chairman Claudio Albrecht to help mount the bid, is keen to seize the company as part of a strategy to build a leading global generics player.

EQT, Commerzbank and the other private equity firms declined to comment. VEM, Teva, Sanofi-Aventis, Ratiopharm and Pfizer also would not comment.

Teva needs fuel

Ratiopharm is billed as the world’s fourth-largest generics supplier with revenues of €1.9bn last year and is Germany’s leading player with a staggering 60% share of the generics market. Sales are forecast to grow 8% annually to €2.4bn by 2014 while margins are 40% higher than the industry average, analysts say.

These “good numbers” are music to the ears of Teva, which is keen to muscle into Europe as part of its recently announced ambitious international expansion plans, which included some bullish forecasts for growth in the European generics scene (Teva's bullish forecast enhances generics outlook, January 8, 2010).

“Teva is one of the weakest generics players in Germany so this will be a very good strategic move for them, even if it’s expensive,” said the banker. “Germany is the biggest market in Europe and Teva has committed huge resources to expanding there.”

Teva’s strength as a manufacturer of generic active ingredients will also generate huge cost and marketing synergies, the banker added. Another senior banker agreed: “Teva will pay the highest price because they will get massive synergies from this deal.”

Fringe players

However, it is uncertain whether Pfizer will fight hard for the asset. “Pfizer is aggressively looking to build a generics business so they may see this as a great opportunity,” the banker added. “However, given that they just bought Wyeth, the board may not think this is the best time to do another acquisition.”

Meanwhile, Sanofi may not bow out easily. It has a generics business in Germany and may wish to protect it against an aggressive Teva incursion. "Sanofi has Winthrop in Germany which is performing very well,” said one banker. "Ratiopharm could help them grow that business but their bid may be more of a defensive move to keep Teva out.”

All agreed Teva has the most to lose if it fails to buy Ratiopharm. “Sanofi is much bigger and more diversified than Teva so they can afford to lose some market share in Germany ,“ said one analyst. “However, for Teva this market is crucial. They will be more tempted to raise the price than anyone else."

by guest contributor, Ivan Castano

Share This Article