Mylan Labs Acquiring Merck KGaA's Generics Unit for $6.7 Billion

Pittsburgh-based generic drug manufacturer Mylan Laboratories Inc. has agreed to purchase the generic drug line of Germany's Merck KGaA for €4.9 billion in cash, or approximately $6.7 billion. Mylan beat out Israeli competitor Teva Pharmaceuticals in a four-month-long contest for the unit. The deal, which is expected to close in H2, is forecast to dilute full-year earnings in the first year, break even in the second year, and contribute significantly to earnings in the third year. Merck KGaA will use the proceeds of the sale to pay off debt accumulated during its €10.2 billion purchase last year of Swiss biotech Serono. Merck KGaA's generics unit posted 2006 revenue of €1.8 billion. The unit has operations in 90 countries. "[B]y paying for a fairly high quality one-time pristine asset, I am able to achieve all the scale necessary in all the areas that are important to compete in the generics pharmaceutical space," said Mylan CEO Robert Coury. "Basically what I have delivered to my shareholders is a derisking strategy to achieve the scale." The sale values the unit at 14.6x 2006 EBITDA and 2.7x sales. Mylan is paying over five times its own sales in the year ended March 2007 of $1.26 billion.

Sources: MarketWatch, Reuters, Bloomberg, TheStreet.com
Commentary: Mylan Labs Gets FDA Approval for Generic Version of Ambien • FDA Refuses Approval To Generics Of Pfizer Drug, Except Mylan • Biotech Legal Battles: Will Other Generics Follow Mylan's Lead?
Stocks/ETFs to watch: Mylan Laboratories Inc. (MYL). Competitors: Teva Pharmaceutical Industries Ltd. (TEVA), Barr Pharmaceuticals Inc. (BRL), Watson Pharmaceuticals Inc. (WPI). ETFs: HealthShares Cardiology (HRD), Rydex S&P Equal Weight Health Care (RYH), SPDR S&P Pharmaceuticals (XPH)

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