Meda Chose Rottapharm From Short List of 10 Targets

Meda AB, the Swedish drugmaker that rejected a takeover approach from Mylan Inc., chose Italian pharmaceutical company Rottapharm Madaus from a short list of about 10 acquisition targets as it seeks to double in size.

Meda started with a list of 150 possible targets, which it cut down to about 10 to investigate more deeply, Chief Executive Officer Joerg-Thomas Dierks said. Meda said today it agreed to buy Rottapharm for about 21.2 billion kronor ($3.1 billion) to add consumer-health products that aren’t subject to pricing negotiations with governments.

“Out of all possible targets, Rottapharm Madaus is the most interesting one for us to realize,” Dierks said in an interview today.

Meda, based in Solna, is seeking acquisitions to bolster its main areas of respiratory medicines, dermatology treatments and over-the-counter products, and in emerging markets. Dierks said in May the company was looking for transformational deals, and that Meda may double in size in two years.

The Rovati family, which owns Rottapharm, will receive 15.3 billion kronor in cash, 30 million Meda shares valued at 3.3 billion kronor and another payment in January 2017 of 2.6 billion kronor, Meda said in a statement today. Rottapharm this month canceled a planned initial public offering after the sale failed to achieve the valuation the family wanted.

Family Business

Meda made an initial approach to Rottapharm and was rebuffed earlier this year, according to two people familiar with the situation. The Rovatis wanted to avoid selling the family business, the people said. The Italian drugmaker pressed ahead with plans for an IPO of a 25 percent stake, which would have allowed the family to keep control of the company.

Talks with Meda resumed after Rottapharm canceled its planned IPO this month, because the process didn’t lead to the anticipated valuation, one person said.

“It’s never easy to convince such a family to give up control,” Dierks said. The Rovatis will have a 9 percent stake in Meda after the deal closes, making them the company’s second-biggest shareholder after Sweden’s Olsson family.

“We’ve had the vision to become a worldwide leading specialty pharma company,” Dierks said on a conference call today. “This is the next step on a longer journey.”

Meda shares climbed 4.6 percent to close at 111.30 kronor in Stockholm.

‘Staying Independent’

Meda itself has been an acquisition target, twice rejecting approaches by Mylan. The Canonsburg, Pennsylvania-based drugmaker instead bought Abbott Laboratories’ off-patent business this month to shift its legal address to Europe. It was the latest of several deals driven by U.S. companies trying to lower their tax bills.

“That cannot be the future of the European pharmaceutical industry,” Dierks said. He declined to say whether Mylan or any other companies have made renewed approaches.

“We believe that we can create the highest value for our shareholders by staying independent,” he said. “And our shareholders have several times clearly stated that they think also that for their shareholding value, that this is done better in an independent situation.”

That may mean that potential acquirers are now “reluctant” to approach the company given their proposals may not be welcome, he said.

Rottapharm, founded in 1961, had sales of 536 million euros ($718 million) in 2013. It has 1,807 employees and 5 production sites in Europe and India. Its brands include Dona, a glucosamine product used to promote healthy joints, Agiolax for constipation and Saugella for intimate hygiene.

Bankers from Rothschild advised Meda, while Reed Smith provided legal advice. Danske Bank A/S, Nordea Bank AB and SEB AB provided the bridge financing and other services. Rottapharm had no financial adviser, while Pavesi Gitti Verzoni acted as legal adviser and Tremonti-Vitali-Romagnoli-Piccardi was tax adviser.

Before it's here, it's on the Bloomberg Terminal.