Grifols to acquire Talecris Biotherapeutics for around $3.4 billion

If it clears FTC’s scrutiny, the deal would create a “world leading provider of life-saving plasma protein therapies”

Jeffrey Bouley
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BARCELONA, Spain—Grifols SA, Europe's largest producer of blood-plasma products, is looking to acquire Research Triangle Park, N.C.-based Talecris Biotherapeutics Holdings Corp. for $3.4 billion in a move that would to expand its reach to almost a third of the U.S. blood-plasma market. What remains to be seen is how the U.S. Federal Trade Commission (FTC) will react, given that CSL Ltd., based in Victoria, Australia, scrapped its proposed $3.1 billion acquisition of Talecris a year ago following an objection by the FTC that it would  control too much of the U.S. market.

If the deal does clear governmental hurdles, it would give Grifols a share in the $7 billion U.S. market for blood-based infusions that is comparable to Baxter International Inc.'s and more than CSL Ltd.'s 29 percent share, said Andrew Goodsall, a healthcare analyst with UBS AG in Sydney, Australia.

On the one hand, it seems like the FTC may be a big hurdle to the current deal. After all, in May 2009, when CSL was making acquisition noises, the FTC authorized a lawsuit to block the proposed CSL deal, charging that the deal would be illegal and would substantially reduce competition in the U.S. markets for four plasma-derivative protein therapies—Immune globulin (Ig), Albumin, Rho-D, and Alpha-1.

"Now more than ever, it is critical that consumers benefit from vigorous competition in the healthcare sector—both to ensure competitive prices and to drive further innovation," said Richard Feinstein, director of the FTC's Bureau of Competition, at the time. "Substantial consolidation has already occurred in the plasma protein industry, and these highly concentrated markets are already exhibiting troubling signs of coordinated behavior. The proposed acquisition would further consolidate the industry and increase the likelihood of collusion."

But as Victor Grifols, Grifols' CEO says, he doesn't foresee any problems with the FTC and expects the deal to close in the fourth quarter because "This operation is very different from the previous one. Grifols is a much smaller competitor than CSL in the U.S. and we don't see any conflict that may leave the FTC uncomfortable about the combination of the two companies."

In a research note about the Grifols-Talecris deal, Aaron Reames, a senior analyst with Wells Fargo, seems to agree, noting that the combined companies would control 31 percent of the blood plasma market in the United States—this is a figure smaller than the 43 percent market share CSL would have netted, and less than the 36 percent market share competitor Baxter already holds.

The combination of Grifols and Talecris would, the companies say, create "a vertically integrated and diversified international plasma protein therapies company, bringing together complementary geographic footprints and products, as well as increased manufacturing scale."

Grifols' "leading global footprint" would reportedly benefit from Talecris' strong presence in the United States and Canada. Also, Grifols' available manufacturing capacity will enable Talecris to increase production in the near term.  

As a result, the combined company will be better able to meet the needs of more patients with under-diagnosed disease states around the world, Grifols notes.

"The acquisition of Talecris furthers our vision to better serve patients and healthcare professionals with innovative products, a strong clinical research capability and new research into recombinant therapies," Grifols says. "We look forward to combining the strengths of both companies to improve the quality of the lives of patients around the world, while positioning the enlarged group for long term profitable growth."

"We believe that Grifols' well-established reputation, know-how and expertise will enable the combined entity to meet the needs of more patients," says Lawrence D. Stern, CEO and chairman of Talecris. "Our employees will benefit from the opportunities available to them as part of a larger, global organization committed to the expansion of Talecris' existing business, the development of our pipeline products, and the maintenance of our culture of compliance and quality. Importantly, our stockholders will realize a compelling premium and benefit from the ability of the combined business to accelerate key gross margin improvement opportunities within Talecris."

Grifols plans to acquire all of the common stock of Talecris for $19 in cash and 0.641 newly-issued non-voting Grifols' shares for each Talecris share. Based on the closing price of Grifols' ordinary shares as of June 4, 2010 and prevailing Euro-Dollar exchange rates, this represents an implied price of $26.16 per Talecris share, which constitutes a premium of 53 percent to the average closing price of Talecris common stock over the last 30 days.

The newly-issued non-voting Grifols shares will be listed on the NASDAQ Global Market and the Mercado Continuo (Spain) and will carry the same dividend and economic rights as Grifols' ordinary shares. The boards of directors of both Grifols and Talecris have unanimously approved the transaction and recommended it to their respective shareholders.

The acquisition is expected to generate approximately $230 million in operating synergies from a more efficient plasma collection network, optimized manufacturing sales, marketing and research and development, which Grifols expects to realize over the next four years with an associated one-time cost of $100 million. The transaction is expected to be accretive to earnings in the first year and produce meaningful accretion from year two. The combined company would have pro-forma annual revenues of approximately $2.8 billion with 58 percent coming from North America, 28 percent from Europe and 14 percent from the rest of the world.

Jeffrey Bouley

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