Web Date: September 28, 2009
Solvay Sells Its Drug Unit To Abbott Labs
Solvay is selling its pharmaceutical business to Abbott Laboratories for $7.6 billion. Calling the move the best option to secure growth for both its pharmaceutical and nonpharmaceutical sides, Brussels-based Solvay will refocus its efforts on chemicals and plastics.
In deciding to shed its drug operations, Solvay is following the lead of several other once-diversified companies, including AkzoNobel, Altana, and BASF. By tying up financial resources in pharmaceuticals, hybrid companies limit their ability to increase size and scale in chemicals, says Britta Holt, an analyst with London-based Fitch Ratings. Meanwhile, their drug operations typically suffer from a lack of critical mass in R&D and sales compared with stand-alone competitors.
“The proceeds from the divestment will be reinvested in external and organic growth with a sharp focus on long-term value creation,” said Solvay CEO Christian Jourquin in announcing the deal. He highlighted geographical expansion and sustainable products.
After the deal is completed, Solvay will have about $10 billion in annual sales, split about equally between chemicals, including soda ash and electrochemicals, and plastics, such as vinyls and specialty polymers. Abbott will gain about $3 billion in annual sales from Solvay, increasing its overall revenues by about 10%. The Solvay unit will also add some $500 million to Abbott’s $2.7 billion in annual R&D spending.
According to Abbott, Solvay brings a portfolio of drugs sold largely outside the U.S. as well as entry into the vaccines market. Abbott has been paying royalties to Solvay on sales of TriCor and Trilipix, cholesterol-lowering fenofibrate drugs that it will now own outright.
In addition, Abbott’s international business, driven by specialty products sold in developed markets, will be expanded by combining Solvay- and Abbott-branded generics in emerging markets, said Olivier Bohuon, Abbott executive vice president.
In a report to clients, Credit Suisse stock analysts describe the deal as “primarily financial engineering,” rather than any “directional change” for Abbott. Datamonitor analyst Joshua Owide suggests, however, that Abbott’s long-term pharmaceutical sales growth will be significantly better than was forecast before the deal.
Solvay says all of its pharmaceutical employees will transfer to Abbott with the business.
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