Talecris Proceeds With Expansion as Grifols Makes $3 Billion Purchase Bid

Talecris Biotherapeutics Holdings Corp. will proceed with an $800 million expansion of its blood- plasma production capacity amid an announced takeover by Grifols SA, Chief Executive Officer Lawrence Stern said.

The $3 billion acquisition and the plant expansion are likely to help Talecris bring its profit margins into line with those of its main competitor, Baxter International Inc., Stern said today in an interview. This was a stated goal of a five- year capital spending program, including a $268.7 million expansion at the company’s Clayton, North Carolina, plant.

Grifols, Europe’s largest maker of blood-plasma products, agreed to buy Talecris, based in Research Triangle Park, North Carolina, to expand its U.S. market share in plasma products to almost one-third of the total. Grifols will pay $24.44 in cash and stock for each Talecris share, the Barcelona-based company said today in a statement.

“There’s no question in my mind that the acquisition will accelerate our margin expansion,” Stern said in a telephone interview. “We are moving forward as planned on our capital program, but ultimately it will be up to Grifols what proceeds” after the deal closes.

Talecris planned to increase capacity by 43 percent over the next five years, Chief Financial Officer John Hanson said May 13. The company is using about 85 percent of its production facilities and expects to reach full capacity in 2011. Talecris said in February its profitability would be eroded because of capacity constraints.

Stern said Grifols will be able to move manufacturing to Talecris plants, improving his company’s efficiency and gross profit margins, the difference between net sales and the cost of goods sold, stated as a percentage.

$24.44 a Share

The purchase values Talecris at $24.44 a share. That’s 54 percent more than Talecris’s June 4 closing price on the Nasdaq Stock Market. The company gained $4.10, or 25.8 percent, to $20.01 at 4 p.m. in Nasdaq Stock Market composite trading, the largest single-day gain since it began trading on Oct. 1, 2009.

The deal gives Grifols the same share of the $7 billion U.S. market for blood-based infusions as Deerfield, Illinois- based Baxter and more than CSL Ltd.’s 29 percent share, said Andrew Goodsall, a health-care analyst with UBS AG in Sydney. CSL, based in Melbourne, scrapped a proposed $3.1 billion acquisition of Talecris a year ago following an objection by the U.S. Federal Trade Commission.

“Talecris has been on the market only for a relatively short time and Grifols is quite hungry to expand,” said Stuart Roberts, who rates Australian health-care stocks at Southern Cross Equities Ltd. in Sydney. “My suspicion is that they’ve done their homework and decided that they wouldn’t be in danger of having the deal knocked back by the Feds the way CSL was.”

FTC Review

Grifols Chief Executive Officer Victor Grifols Roura said on a conference call he doesn’t foresee any problems with the FTC and expects the deal to close in the fourth quarter.

“This operation is very different from the previous one,” Grifols said. “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.”

Stern said he didn’t want to predict how fast the deal would close while the FTC still has to review it.

“It’s appropriate for the FTC to see this differently than the CSL offer,” he said. “I am hopeful we can get approval in the first review, but they could ask for additional information.”

Gamunex, Prolastin

Buying Talecris gives Grifols sales of Gamunex, a treatment for three immune-system disorders, and Prolastin, the biggest- selling treatment for Alpha-1 antitrypsin deficiency, a condition that can lead to lung disease. The two products accounted for 77 percent of sales in the three months ended March 31, Talecris said in a regulatory filing in April.

Plasma is the watery, yellow liquid that carries blood cells. Grifols, Talecris, Baxter and CSL pay healthy people to donate plasma at collection centers across the U.S., then spin it in a centrifuge to extract products such as immunoglobulins, albumin and blood-clotting proteins for treating hemophilia.

Talecris is the third-largest plasma product seller globally, with Grifols fourth, Stern said. In the U.S., Talecris may be second or third based on its biggest products, he said.

The purchase values Talecris at about 22 times last year’s net income, compared with price-earnings ratios of 11 for Baxter and 15 for CSL. Cerberus Capital Management LP, the New York- based private-equity firm that owns about 49 percent of Talecris, agreed to vote in favor of the purchase, Grifols said.

‘Meaningful’ Accretion

The acquisition will add to Grifols’ earnings in the first year, with “meaningful” accretion beginning in the second year, the company said. Banks led by Deutsche Bank AG, Nomura Holdings Inc., Banco Bilbao Vizcaya Argentaria SA, BNP Paribas SA, HSBC Holdings Plc and Morgan Stanley, have agreed to finance the acquisition, Grifols said.

Talecris stockholders will receive $19 in cash and 0.641 of a newly issued non-voting Grifols share for each Talecris share. Grifols declined 79 cents, or 8.5 percent, to 8.48 euros at the close of Madrid trading, giving the company a market value of 1.8 billion euros ($2.15 billion). The decline was the biggest in almost seven weeks.

The Spanish company had 249 million euros in cash and equivalents as of Dec. 31, and long-term debt totaled 703 million euros, according to its annual financial filing.

Nomura and BBVA advised Grifols on the deal, while Osborn Clarke SLP and Proskauer Rose LLP provided legal advice. Talecris’s financial advisers were Morgan Stanley, Citigroup Inc. and Natixis, and Wachtell, Lipton, Rosen & Katz Arnold & Porter LLP and Uria Menendez were legal counsel. Cerberus was advised by Goldman Sachs Group Inc.

Cerberus, Ampersand

Talecris was created in 2005 when Bayer AG sold its plasma business for about $590 million to New York-based Cerberus and Ampersand Ventures of Wellesley, Massachusetts. The plasma- product maker raised $950 million in an initial public offering in 2009, and had $605 million in long-term borrowings as of March 31 this year.

Grifols sold shares in an initial public offering in 2006. The company was founded in 1940 by a Spanish hematologist, Jose Grifols Roig. His son, Victor Grifols Lucas, owns 6.2 percent of the company’s shares, while the founder’s grandson, Victor Grifols Roura, is chairman and CEO and holds 0.2 percent of shares.

To contact the reporters on this story: Pat Wechsler in New York at pwechsler@bloomberg.net; Carey Sargent in Geneva at csargent3loomberg.net

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