Mylan to Buy Generic Drug Business from Germany's Merck
German drug maker Merck announced Sunday that it is selling its generic drug business to Mylan Laboratories for $6.6 billion.
The deal frees Darmstadt-based Merck to concentrate on its core pharmaceutical and chemical activities, while allowing Mylan, a generic drug maker based in Canonsburg, Pa., to expand its global reach.
Merck, founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world. It has been entirely separate from New Jersey-based Merck & Co since the end of World War I, and employs some 29,000 people.
Mylan’s stock fell Monday , but CEO Robert Coury said he's confident that investors will focus on the bigger picture, particularly the rich “opportunity for institutional shareholders.”
The CEO told CNBC’s Liz Claman that the deal has transformed both Mylan and its shareholder base from a value-oriented entity into a growth company.
As to the debt that Mylan incurred to pull off the Merck deal, Coury pointed to “what shareholders give up” when private-equity groups “take companies private and lever up.” By contrast, Coury said, “I am giving investors the opportunities right off the bat to share in future growth.” And he said Mylan “can de-lever rather quickly.”
Coury praised his managerial “SWAT team” that facilitated Mylan’s integration with the Merck unit’s leadership. Together, the combined company is creating not merely the largest generic-drug manufacturer, but the “largest quality generics” firm, he said.
Merck said that the two companies "signed a share purchase agreement whereby Mylan will acquire all Merck Generics companies throughout the world" and it expects the transaction -- which requires regulatory approval -- to close in the second half of 2007.
Merck said the unit had sales of $2.4 billion and an operating profit of more than $500 million last year.
Merck's generic drug division has nearly 5,000 employees.
"The fit between our two companies is truly outstanding," said Robert J. Coury, Mylan's vice chairman and CEO. He said the Merck unit "provides us with leading positions in many of the world's other key regions" to add to Mylan's strong position in the U.S. market.
The deal follows Mylan's recent acquisition of 71% of India-based drug ingredient maker Matrix Laboratories for a little over $700 million.
Merck said earlier this year that it was amenable to a sale of the generics division. India's Ranbaxy Laboratories and Iceland's Actavis Group publicly expressed interest.
Merck last year chased rival German drug maker Schering, but was outbid by Bayer. It then bought Swiss biotech company Serono for $14.3 billion in a deal aimed at expanding its range of drugs and its share of the global biotechnology market.
Selling its generics unit would help lower the company's debt following that acquisition. Merck said the unit accounted for 29% of its total sales and 28% of its operating profit in 2006.