Issue Date: May 21, 2007
Mylan Captures Merck Unit
The price tag was at the high end of what analysts had projected the sale would garner, reflective of the wide interest in the Merck unit. A number of suitors, including Israel's Teva Pharmaceutical and India's Ranbaxy Pharmaceuticals, were reported to have emerged since Merck officially put its generics business on the block in January.
The purchase gives Mylan the critical mass to compete in the global generics arena, where economies of scale are vital. The combined entity will have sales of roughly $4.2 billion and employ about 10,000 people. Merck's business will also significantly broaden Mylan's global footprint—it has traditionally focused on the U.S. market—while also expanding its product portfolio and formulations technology toolkit.
Consolidation has become a survival strategy in the highly competitive generics market, and Mylan has struggled to find the right partners to take its business global. The company's attempt to merge with King Pharmaceuticals fell apart in 2005 after it was slammed by investment analysts. Earlier this year, Mylan succeeded in its bid for Matrix Laboratories, the Hyderabad, India-based maker of active pharmaceutical ingredients (APIs), but analysts were skeptical about Mylan's ability to run a manufacturing business.
Mylan says the combination of Merck and Matrix establishes a cost-efficient, vertically integrated player. Mylan expects to realize long-term sales growth of over 10% per year and earnings growth exceeding 30%. The company believes it can achieve that growth without making major layoffs by instead focusing on saving $250 million over the next three years, largely through manufacturing synergies from the integration of Merck's API supply chain into Matrix' facilities.
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