Fresenius AG to buy APP Pharmaceuticals for $3.7 billion

Chris Anderson
SCHAUMBURG, Ill.—APP Pharmaceuticals Inc., a provider of hospital-based injectable pharmaceutical products, and Fresenius SE, a global health care group based in Germany with annual sales of approximately $18 billion, announced Monday they entered into a definitive merger whereby Fresenius will acquire APP for $23 per share, or a total of $3.7 billion. The acquisition marks Fresenius' entry into the U.S. market.

"With the APP platform, Fresenius Kabi will be able to market its product range in the U.S. Fresenius Kabi's international marketing and sales network will allow us to sell APP's products globally," Fresenius CEO Ulf Schneider said in a statement announcing the deal.

At the core of the acquisition is APP's leading position as a provider of the drug heparin, a blood thinning drug used for patients on dialysis. Fresenius is the world's leading provider of dialysis services.

APP's niche is the provision of generic injectable drugs for dialysis, cancer, pain and critical care management targeting the hospital-based market. It reported 2007 sales of $647 million and is forecast to significantly increase that amount to between $730 million and $750 million this year.

"We are proud to have consistently provided injectable pharmaceutical products of the highest quality to patients in the acute care setting over the past decade. In Fresenius we have found a partner with the same commitment to quality and dedication to patient care," said Dr. Patrick Soon-Shiong, founder and chairman of APP. "The combined company will allow for the rapid globalization of APP's portfolio."

While the initial acquisition of APP is for $23 per share, the total value of the deal could go much higher. Also included is a contingent value right (CVR) that could deliver up to an additional $970 million, or $6.00 per share in cash, if the financial results of the company meet certain targets. Fresenius will also assume all of APP's outstanding debt which currently totals approximately $940 million, net of cash. In aggregate, the consideration for the acquisition of APP, including the CVR, could be up to $5.6 billion.

As a result of the deal and the announcement by Fresenius that it would finance the deal with a combination of cash and debt, Fitch Ratings lowered its outlook on the company from stable to negative.

"Although the acquisition causes a temporary deterioration in Fresenius' debt protection measures in the short term, it is slightly positive for its business profile by adding a high-margin business with good sales growth potential," Fitch analyst Britta Holt noted in a report by Reuters.

While the financial markets drove Fresenius shares lower on the announcement at what was viewed as a relatively high premium for APP, analysts were generally accepting of the price paid based on the strategy of entering the United States and the injectables market.

 

Chris Anderson

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