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European bankers and analysts have expressed confusion about Nycomed’s purported bid for Solvay Pharma, questioning the rationale behind the deal and wondering how it will manage to finance it, Pharmawire reports.
Belgian chemicals and industrial giant Solvay SA (EBR:SOLB) launched the sale last spring, hoping to fetch EUR 5bn for the business, which has sales of EUR 2.7bn.
The auction has not gone very well, however, with a string of high-profile bidders – including Sanofi-Aventis (EPA:SAN) and AstraZeneca (NYSE:AZN)– exiting the process last month amid Solvay’s “high” price expectations.
The deadline for second-round bids has been extended beyond mid-July, said a source close to the situation. Solvay and the three advising banks declined to comment.
“There are only two parties left. One is definitely Nycomed and the other a Japanese bidder,” said one banker representing a suitor that exited the auction.
The banker said Takeda (TYO:4502), which dropped from the auction last month could have made a last-minute return, adding that Japanese rival Astellas (TYO:4503) could also be in the race.
A Takeda spokesman, however, reiterated the company is not interested in buying Solvay. Astellas could not be reached for comment.
While Solvay hopes to wrap up the deal before the summer it is in no rush to conclude it, the source close to the situation said, but added more than two undisclosed suitors remain in the race.
In April, Solvay hired Citigroup, Morgan Stanley and Rothschild to explore several options to boost the drug unit’s contribution to the group’s fortunes. As part of the review, the banks launched a dual-track sale leaving the door open to a sale, IPO or partnership which are still being considered.
Europe’s markets have been abuzz with speculation about the bidders – following yesterday’s reports that Abbott (NYSE: ABT) tabled a bid for Solvay’s cholesterol drug Tricor while Nycomed and a Japanese firm made full offers for the firm.
An Abbott insider said the company did not bid for Tricor and that it is not interested in expanding in its fenofibrates drug class. One banker familiar with the situation, however, said Abbott could consider a future purchase of the drug as it sees strong value from it. Abbott pays Solvay high royalties to market Tricor, an analyst said.
Meanwhile, bankers and analysts struggled to make sense of Nycomed’s bid, which could create a pharma group with EUR 6bn in sales. Nycomed itself has EUR 3.8bn in turnover.
“I don’t understand why they are doing this and how they are going to finance it,” said the first banker, adding that Nycomed’s high debt will make it difficult to mount a bid for Solvay.
A second banker said the transaction would not make sense for Nycomed, affording it size but little strategic benefit. Echoing other observers, he said Solvay may decide to pursue an IPO to generate more value. However, he conceded that a listing would not be possible until late 2010 when the global equity capital markets should have recovered.
“An IPO would unlock more value for Solvay as this is a household name in Belgium and institutional and retail investors would be very interested in the sale,” he noted.
Of course, Solvay could opt for a merger or partnership. It has long been interested in divesting its pharma unit, which has below-industry-average margins, to re-invest the proceeds in its mainstay chemicals business. One analyst said a merger with Nycomed may be a feasible option. “This would be sensible,” he said. “Nycomed is overleveraged [with some EUR 1.8bn in debt] and it’s going to be hard for its private equity owners to raise financing for the deal as few banks want to lend to buyout groups.”
Another analyst said that’s unlikely, however, adding that Solvay’s family owners would not want to hold Nycomed shares. “This is not something they would want to do. They want to sell the business as its underperforming.”
Potential synergies apart, bankers wondered how Nycomed would finance Solvay’s acquisition. Swedish buyout firm Nordic Capital holds 41% of Nycomed while DLJ Merchant Equity Partners, a unit of Credit Suisse, owns 25%. Avista Capital Partners holds 6.4%.
The second banker said the buyout firms would have to pay at least EUR 1bn in cash and finance the rest through a syndicated bank loan – a big feat at a time when most lenders are shunning buyout groups.
Some of the private equity owners may also be against the deal, he said. “Nordic may be able to fund part of the transaction as it has good relationships with Scandinavian banks but DLJ and Vista may not have this ability and may not want support this,” the banker noted. But other bankers said Nycomed could still manage to gobble up Solvay. The auction’s ”uncompetitive” nature could persuade Solvay to lower its pricing ambitious, enabling Nycomed to buy the business for 6x EBITDA or EUR 3.6bn, the second banker said, though some believed Solvay may not budge that much.
Meanwhile, analysts disagreed about the value Solvay would bring Nycomed. “There is limited overlap between the businesses and their therapeutic areas,” said one analyst, adding that Nycomed’s focus on rheumatoid arthritis, inflammation and respiratory diseases would not match Solvay’s cardiovascular and CNS strengths.
But another analyst said Solvay would boost Nycomed’s value before a listing.
”This deal could bring significant cost savings and synergies,” she said. ”Solvay has some exciting drugs such as Tricor and Influvac and this will help Nycomed diversify its business and gain scale.”
One banker added Solvay’s strong emerging markets foothold (mainly Eastern Europe, Asia and Latin America) will enable Nycomed to roll out its products there. A third analyst was more sceptical, however, saying Solvay would make a better fit for a Japanese player.
“This would make more sensitive for Astellas, Takeda or Daiichi Sankyo (TYO:4568),” he said. “These companies are going to draw most of their growth from the emerging markets and the best way to get a foot in the door is to buy Solvay.”
Moreover, he expects Solvay’s revenues to rise sharply in 2001, bolstered by its vaccines franchise, as well as Tricor and its other strong-selling drug Creon.
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