RoM

Generics giant Teva Pharmaceuticals on Friday
announced the largest deal ever closed by an
Israeli company. Teva will buy U.S. injectables
firm Sicor for $3.4 billion in cash and stock. The
deal therefore values Sicor at $27.5 per share, as
Teva outbid Novartis unit Sandoz, Bear
Laboratories and apparently one more rival.


Teva fell 1.4 percent in
response to the news while
Sicor climbed 7.2 percent to
$26.8, which is just 2.5
percent below the deal
price.

According to the acquisition
agreement, Teva will pay
Sicor shareholders $2 billion

in cash, which amounts to $16.5 per share. Teva
will allocate 0.19 Teva shares for each Sicor
share, giving the Sicor holders a 7 percent
fully diluted stake in Teva.

The deal is final and not dependent on the Teva
share price. Retreat would mean a substantial
fine, although executives of both companies
refused to detail the penalties.

Teva will finance the cash component of the deal
with $1.2 billion from its kitty and an
already-secured bank loan. Teva noted it
expects to close the deal in the first quarter
of 2004, contingent on regulatory approval and
a Sicor shareholders meeting in February or
March 2004.

The two major Sicor shareholders, a finance
company and Carlo Salvi, who hold 19 percent
between them, have promised to support the
deal. Sicor shareholders, including Israeli
funds, will be charged tax on the full value of
the deal.

Seventy-seven percent of Sicor's revenue stems
from its injectables manufacture business. Like
Teva, the company makes active pharmaceutical
ingredients for other companies and for its own
manufacturing processes, substantially
improving its profitability.

Cherry ripe for the picking
Teva CEO Israel Makov said in a conference call
after the announcement of the deal that the
Sicor purchase contributes five growth engines
to the Israeli company.

Sicor is one of the strongest companies in the
U.S. hospital sector, giving Teva an immediate
presence in a market it has eyed for some
time.

Sicor will constitute a base for Teva's global
operations in injectables via its Irvine,
California and Mexico manufacturing sites. Teva
operates in this market via Pharmachemie
Netherlands and a Hungarian subsidiary. Low
production costs in Mexico will allow Teva to
expand its product line in Europe (where it has
suffered from low profit margins) and increase
its product line in the U.S.(where profit
margins are bigger).

Makov puts the European injectables market at
300 million euro annually, projecting it will
grow to 700 million euro by 2006.

Another reason for the Sicor acquisition is the
company's Mexican operation. Teva entered that
market recently, establishing a subsidiary to
distribute its multiple sclerosis drug there
and later to distribute Teva generics in Mexico
and Latin America.

Sicor is already involved in that market and 15
percent of sales originate there; the
acquisition becomes a shortcut for Teva's
Mexican penetration process.

Another growth engine would be Sicor's active
pharmaceutical ingredient (API) manufacturing
operations. Sicor makes 25 ingredients for
medications it markets and 36 APIs for other
drugs. Sicor's operations in this area are
complementary to Teva's as they include the
manufacture of cancer drugs and
anti-inflammatory steroids based on synthetic
derivatives of natural hormones.

Makov said buying the U.S. company will
strengthen Teva's leading status in the API
market. Makov noted Teva's interest in Sicor's
biogenerics - generic versions of drugs
originating from live cells an not through
chemical synthesis.

Teva executives emphasized in the conference
call that this acquisition does not torpedo a
deal Teva is negotiating to buy Israeli
specialty pharmaceuticals maker Savient.
Savient, with similar biogeneric capabilities
to Sicor, announced in early October that it is
in talks with Teva to be bought for $365
million in cash.