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Novartis offers $4.5 bln to buy up Chiron
  Thu Sep 1, 2005 8:38 AM ET By Tom Armitage
ZURICH (Reuters) - Novartis AG on Thursday offered $4.5 billion for the shares of U.S. drugmaker Chiron Corp. it does not already own, in a bid to take the Swiss group firmly into the vaccines business.
Investors quickly pushed shares of Chiron -- a flu vaccine maker that has struggled to bring plants in England and Germany up to regulatory standards over the last year -- above the Novartis offer price of $40 per share.
Valuing the U.S. company at about $7.8 billion, or 4.6 times total 2004 sales, the Novartis offer for the remaining 42.2 percent of Chiron translates into a premium of about 10 percent to Wednesday's closing share price.
Shares of California-based Chiron rose to $43 in pre-market trade, just below the $44 level they reached last October, before the company's license to make a flu vaccine was suspended due to plant issues.
"Despite the recent string of manufacturing disappointments, we believe that the ... premium offered to Chiron shareholders will likely have to rise," Deutsche Bank analysts wrote.
The deal could be completed promptly, Novartis said in a statement, but added "there can be no assurance that an agreement will be reached."
Analysts said the deal made sense strategically and would give Novartis access to a range of vaccines, at time when interest in vaccination is growing amid fears of a bird flu pandemic and hopes the technique could prevent more diseases.
Lombard Odier Darier Hentsch analyst Bob Pooler said that the deal would be relatively straightforward, if it came off, since Basel-based Novartis already had close relations with the company.
Shares in Novartis were trading 0.7 percent higher at 61.25 francs, as analysts welcomed the deal. Standard & Poor's said the outlook for the firm did not change and that it expected Novartis to take measures to regain its cash position.
Nomura analysts wrote in a note: "We see this transaction as broadly neutral in financial terms and strategically it adds expertise in the company's core area of pharmaceuticals."
Chiron shares last traded at $36.44 on Wednesday, well below levels of around $44 before its license to produce flu vaccines was withdrawn in October last year.
The Emeryville, California-based firm barely broke even in the second quarter of the year as it struggled to produce enough of its flu vaccine to supply customers before the coming winter, due to problems at plants in Germany and the UK.
However, FDA inspectors gave a favorable report after inspecting the plant in Liverpool, northwest England, and Chiron said it could start supplying the vaccine again by the 2005-2006 flu season.
Novartis, the world's sixth-biggest drugmaker by prescription sales, said it had made the offer after conducting due diligence on Chiron, with the directors' approval.
"We believe Novartis would be in a better position to help Chiron resolve its key issues as a wholly owned subsidiary. This is the best option for all concerned," a spokesman said.
Chiron said it would thoroughly evaluate the offer.
Chiron operates three business segments -- the fast-growing vaccines division, blood testing and BioPharmaceuticals, which makes drugs for infectious diseases and cancer.
"The vaccines business is likely seen a key strategic platform for Novartis, while Chiron's cancer therapeutics franchise fits well with Novartis' leading position in oncology," Deutsche Bank said.
Vaccines have traditionally been viewed as a low-growth, low-price business by comparison with mainstream therapeutic pharmaceuticals.
But the arrival of new technologies and a shake-out in the sector, which has seen a number of vaccine players quit the business, is changing that perspective and many industry experts now expect vaccines to show accelerated growth in coming years.
Britain's GlaxoSmithKline Plc, one of the world's leading suppliers, forecast in June that the total vaccine market could quadruple in size by 2015 to between 17 billion and 24 billion pounds, from 5.2 billion today.
After missing out to Sanofi in the running for Aventis last year, Novartis has been busy consolidating its position in each of its three divisions -- pharmaceuticals, generics and consumer health.
Novartis has already splashed out $8 billion this year on two generics drugs makers and spent a further $660 million in cash on Bristol-Myers Squibb's portfolio of non-prescription drugs, bolstering two of the three units.
With the offer for Chiron, Pooler said that Novartis was unlikely to go after another mega-merger.
"The chances of them making a large pharma deal is probably lower now and that in the past was one of the concerns," he said. "They are using the cash to grow the business."
Novartis racked up sales of $28.2 billion in 2004 and made a net profit of $5.8 billion. Chiron had 2004 sales of $1.7 billion and 5,300 employees worldwide.
(Additional reporting by Ben Hirschler in London)
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