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Mylan to buy Abbott business line in $5.3B deal

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Big deals

Cecil-based Mylan Inc. has made itself into a powerhouse in the generic pharmaceutical industry, mainly through acquisitions.

2007: $6.7 billion acquisition of Merck Generics, a German company with sales in 90 countries. The deal included EpiPen, a treatment for severe allergic reactions that is nearing $1 billion in annual sales.

2007: $736 million payment for a 71 percent stake in Matrix Laboratories Ltd. of India, the world's second-largest maker of active ingredients for drugs. It later bought the rest of Matrix.

2013: $1.75 billion purchase of Agila, a business unit of India's Strides Arcolab Ltd. that specialized in manufacturing injectable medications, expanding Mylan's manufacturing capacity.

2014: $5.3 billion deal for Abbott Laboratories' generics business in Europe, Canada, Japan, New Zealand and Australia. Mylan will reincorporate in the Netherlands for tax purposes and expects to add $2 billion in annual revenue.

Monday, July 14, 2014, 9:51 a.m.
 

Mylan Inc.'s strategy to become a global powerhouse in generic pharmaceuticals took a leap on Monday.

The company that started more than 50 years ago as a small drug manufacturer with a mainly American customer base announced a $5.3 billion acquisition and a reorganization as a Netherlands-based corporation.

Mylan's headquarters will remain in Cecil when the deal for a subsidiary of Abbott Laboratories closes next year, Mylan said. But the world's third-largest generics company increasingly will seek growth abroad.

“The main growth drivers in pharmaceuticals are coming from overseas markets,” said Jeff Loo, an analyst with S&P Capital IQ in New York.

The all-stock deal for Abbott's generics business in Europe, Canada, Japan, New Zealand and Australia is attractive for several reasons, Mylan officials said.

The business is expected to add $2 billion to Mylan's annual revenue, bringing it to about $10 billion in 2015. It will increase earnings by 25 cents per share in the first year. The company expects earnings of $3.25 to $3.60 a share this year.

The reincorporation in the Netherlands will produce significant tax savings, which Loo said could be worth hundreds of millions of dollars a year. Abbott's overseas business is based in the Netherlands.

Mylan likely gained buying power to pursue acquisitions in a consolidating industry, said Margaret Labban, an analyst with IHS Life Sciences in London.

Robert Coury, Mylan's executive chairman, told analysts on a conference call that the deal “is the first of what we expect to be a series of highly strategic and financially accretive moves for Mylan.”

The acquisition is expected to lower Mylan's tax rate to 20 percent to 21 percent in the first full year, down from about 25 percent. The company expects its tax rate to be in the high teens in three to five years.

Several American companies are using mergers to reincorporate in countries with lower tax rates, a tactic known as tax inversion, raising lawmakers' concerns that the government could lose billions in tax money.

Sen. Carl Levin, D-Mich., sponsored a bill to place a two-year moratorium on inversions.

“Average taxpayers are fed up with profitable U.S. corporations using tax haven gimmicks to dodge their tax obligations, while still benefiting from this country's laws, infrastructure and workforce,” Levin said last month.

Since January 2012, 19 American companies have sought or completed purchases of companies overseas and changed their addresses to gain lower tax rates.

In recent months, a number of American health care companies have pursued deals for competitors in Europe. Abbott spin-off AbbVie Inc. entered talks with Shire Plc. over a $53.7 billion deal to move the company to the British island of Jersey. Medical device maker Medtronic Inc. agreed to buy Ireland-based competitor Covidien for $42.9 billion. Drugstore chain Walgreen Co. is considering a similar move with Swiss health and beauty retailer Alliance Boots.

Mylan CEO Heather Bresch said the company didn't have an option when it came to moving its tax base abroad because its competitors are leaving.

“We were the last Mohican standing,” she told Bloomberg News. “We're the last in our sector to have announced an inversion or to be domiciled outside the U.S.”

The Abbott business encompasses more than 100 generic and specialty drugs, manufacturing plants in France and Japan and 3,800 employees.

John Sheehan, Mylan's chief financial officer, told analysts Mylan expects to cut expenses in the Abbott unit by $200 million a year in three years.

Mylan's shares closed at $51.24, up $1.04, a 2 percent increase.

Abbott will own about 21 percent of the combined company — to be called Mylan NV — but said it does not intend to remain a long-term shareholder. Shares of Mylan NV will trade on the Nasdaq under Mylan's ticker symbol, MYL.

The transaction could double Mylan's revenue in Europe by strengthening its presence in Italy, the United Kingdom, Germany, France, Spain and Portugal. Its revenue in Canada, Japan, Australia and New Zealand will grow.

Founded in 1961 in West Virginia, Mylan was a much different company a decade ago. In 2003, it had 2,500 employees and sold 115 products, primarily in the United States. Its annual revenue was $1.3 billion.

Now, Mylan employs more than 20,000 people around the world, and its portfolio includes about 1,300 medications. It has commercial operations in 140 countries and more than 30 manufacturing facilities. It anticipates revenue of $7.8 billion to $8.2 billion, not including the Abbott deal.

Acquisitions were key to that growth.

In 2007, Mylan completed two transformative deals: It paid $6.7 billion for Merck Generics, a German company with 400 products and sales in 90 countries, and $736 million to acquire 71 percent of Matrix Laboratories Ltd. of India, the world's second-largest maker of raw ingredients for drugs. It later bought the rest of Matrix.

Last year, Mylan paid $1.75 billion for Agila, a business unit of India's Strides Arcolab Ltd. that specializes in manufacturing injectable medications. That deal gave Mylan manufacturing capacity and a bigger foothold in emerging markets, such as Brazil and India.

The Associated Press and Bloomberg News contributed. Alex Nixon is a Trib Total Media staff writer.

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