And so the generic consolidation continues. And this month’s winner - and the price - isn’t much of a surprise. The all-cash deal will make Mylan the the world’s third-largest maker of copycat drugs.

The price is high. Mylan is paying more than its own market value to buy a unit with annual sales almost double its own. In winning the four-month bidding war, Mylan beat out Israel’s Teva Pharmaceuticals, the world’s largest generic manufacturer.

The combo should help Mylan streamline manufacturing and gain access to new markets and products, Mylan’s ceo, Bob Coury, tells Bloomberg News. The acquisition will let it sell cheap versions of AstraZeneca’s Prilosec ulcer pill and Merck.’s cholesterol-lowering medicine Zocor.

“It’s slightly on the expensive side, but I don’t think they could have bought this kind of business any cheaper,” saysid Rohit Bhat, an analyst with Batlivala & Karani Securities in Mumbai. Mylan will more than double its revenue, so “it’s worth the effort. These opportunities don’t come around very often.”

Mylan’s offer values the Merck unit at 14.6 times 2006 earnings before interest, tax, depreciation and amortization and 2.7 times sales, according to Bloomberg calculations. That compares with the 13.7 times earnings that Zentiva NV agreed to pay in March for a majority stake in the generic drug unit of Turkey’s Eczacibasi.

“Scale, scale, scale, scale is what we’re after,” Coury says. “When you’re in this type of low-cost pharmaceuticals, driving the cost of goods down is very critical.”

Mylan said it expects to save $250 million three years after the acquisition, and the deal will start contributing to earnings after two years. Mylan will keep Merck generics’s management and won’t makes “significant reductions in headcount” to achieve its goals. But there were no specifics. The combo will have 10,000 employees.

In a statement, Teva says: “While Merck’s generics business would have been a strategic fit for Teva, the terms of this opportunity did not fully meet our investment criteria.”

Source: Bloomberg News
Further reading:
Reuters;
Mylan statement;
Merck statement;
Teva statement.
[tags]Generics, Merck KGaA, Mylan Laboratories[/tags]