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Meda at 15-Month High Still May Rise 30% in Drug Deal: Real M&A

Meda AB CEO Anders Lonner
Meda AB, the Swedish drugmaker that climbed to a 15-month high on takeover speculation, may cost bidders at least 30 percent more in an acquisition. Source: Meda AB via Bloomberg

Meda AB, the Swedish drugmaker that climbed to a 15-month high on takeover speculation, may cost bidders at least 30 percent more in an acquisition.

Meda, which was approached by Valeant Pharmaceuticals International Inc. according to two people with knowledge of the matter, is now valued at 6.7 times its 2012 earnings before interest, taxes, depreciation and amortization. Using the median multiple of 7.1 times for its publicly traded competitors and a takeover premium of 21 percent in comparable deals, Meda’s equity may sell for at least $4.8 billion, according to data compiled by Bloomberg. That’s more than a billion dollars greater than its current market value.

A sale would help Sweden’s second-largest health-care company recoup some of the 36 percent loss its shareholders have suffered since Meda rose to a record less than five years ago. With drugmakers facing a decline in revenue as patents expire, Meda’s sales in faster-growing emerging markets such as eastern Europe and Russia may lure bidders trying to bolster growth, according to YCMNet Advisors. Valeant, which has a history of doing deals with Meda, may now be interested in buying it after losing a bid for Cephalon Inc. in May, ABG Sundal Collier said.

“What’s driving acquisition and consolidation right now is pipeline,” Michael Yoshikami, chief executive officer and founder of YCMNet Advisors, which manages $1.1 billion in Walnut Creek, California, said in a telephone interview. Meda “is one of the more appealing companies out there in terms of being able to buy products. There’s an opportunity for a company to expand their footprint” in developing markets, he said.

Takeover Speculation

Anders Larnholt, a spokesman for Meda, didn’t return a telephone call requesting comment after normal business hours. Laurie Little, a spokeswoman for Mississauga, Ontario-based Valeant, declined to comment.

The approach by Valeant was informal and may not lead to a deal, said one of the people familiar with the matter, who declined to be identified because the situation is private.

Shares of Meda jumped 6.7 percent yesterday, bringing its market value to 22.9 billion Swedish kronor ($3.61 billion). Its closing price of 75.8 kronor was the highest since April 2010, data compiled by Bloomberg show.

Meda advanced a further 3.3 percent today to 78.30 kronor in Stockholm.

Even with yesterday’s advance, Meda trades at a discount to its projected 5.23 billion kronor in Ebitda next year. Including net debt, specialty drugmakers that are commercially profitable and have market capitalizations of $1 billion or more are valued at a median of 7.1 times next year’s Ebitda, the data show.

Relative Value

At the industry median, Meda would have an implied equity value of 25.2 billion kronor, or 83 kronor a share. Apply the average premium for medical drugmakers in takeovers valued at $1 billion to $10 billion, and Meda would then be worth 101 kronor a share in an acquisition, data compiled by Bloomberg show.

Meda’s controlling shareholder and executives consider that the current price undervalues the company and may view a figure of closer to 120 kronor a share as a starting point for any potential discussions, according to a person briefed on the matter, who wasn’t authorized to speak publicly.

“Looking at the valuation of Meda, there is definitely room for a premium,” said Erik Hultgard, an analyst at ABG Sundal Collier in Stockholm. In addition to Valeant, “there is definitely, in my view, other companies that could be potentially interested,” he said.

Nausea, Erectile Dysfunction

Meda sells Bifera, a drug to treat iron deficiency; Cesamet, a treatment for nausea from chemotherapy; Muse, a drug for erectile dysfunction; and Edluar, which helps patients fall asleep.

Sales in Turkey more than doubled, while Russia’s topped 20 percent in 2010, Meda said in its annual report. Sales in central Europe, its largest market, accounted for 32 percent of its revenue last year, and have surged sevenfold in the past five years, data compiled by Bloomberg show.

Analysts project the company will report record 1.57 billion kronor in net income this year, about double the amount it earned five years ago, according to the data.

Meda is profiting from its presence in emerging markets, where it estimates that industrywide demand for pharmaceuticals will increase by 25 percent. That compares with growth of 6 percent in the U.S., it said.

Kristofer Liljeberg-Svensson, a health-care analyst at Carnegie Investment Bank AB in Stockholm, said Valeant is the “most likely buyer” for Meda.

‘Perfect Fit’

Meda has been involved in three transactions with Valeant since 2008, data compiled by Bloomberg show, and the two companies also have “joint ventures in Canada, Mexico and Australia,” according to a statement from Meda.

Meda is an attractive target because Valeant gets 74 percent of sales from the U.S. and just 6 percent from Europe, according to Yilmaz Mahshid, an analyst at E. Ohman Jor Fondkommission AB in Stockholm.

“I would say that would be a very perfect fit,” Mahshid said in a telephone interview. “It’s like putting two pieces of a puzzle together.”

Valeant’s interest in acquiring Meda may stem from its failed bid for Frazer, Pennsylvania-based Cephalon, which was bought by Teva Pharmaceutical Industries Ltd. of Petach Tikva, Israel, according to YCMNet’s Yoshikami.

“They’re going to need to either come out with new products internally or go out and buy them,” he said. “This is an opportunity they see to be able to replace Cephalon as well as expand their presence in other countries.”

Dance Partners

Drugmakers are also turning to acquisitions as patents of their best-selling treatments expire, leaving them vulnerable to declining sales as generic makers offer cheaper versions.

Nine out of 10 of the world’s largest drugmakers by sales, including Pfizer Inc. of New York and Sanofi in Paris, have U.S. patents that expire next year, data compiled by Bloomberg show. Pfizer, the world’s largest drugmaker, faces expirations on at least six drugs in 2012, including its erectile dysfunction pill Viagra, the data show.

Exclusive rights to Plavix, Sanofi’s blood-thinning drug, are also set to expire next year. Plavix was the world’s second-best selling drug.

Meda faces “limited” patent expiration risk, Credit Suisse Group AG said this month. In addition, five of nine drugs in Meda’s pipeline have already progressed past so-called phase 3 clinical trials, the last of three stages of human testing generally required by U.S. regulators.

“With several of the big companies losing key products to generics, they’re out shopping for something to keep that sales force active,” said Scott Billeadeau, who helps oversee $17 billion at Fifth Third Asset Management in Minneapolis. “My guess is there are going to be a lot of dances going forward.”

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