By Silke Koltrowitz and Sarah White
ZURICH/MADRID (Reuters) – Switzerland’s Novartis has agreed to sell its blood transfusion testing unit to Spain’s Grifols for $ 1.68 billion, in an increasingly buoyant market for healthcare deals.
The sale comes as Novartis carries out a wider review of operations under new chairman Joerg Reinhardt, who has defended the firm’s diversified nature but stressed he would only hang on to businesses that are among world leaders.
Novartis Chief Executive Joe Jimenez said on Monday he had started the strategic review of Novartis’s businesses – including the blood unit which carries out tests to ensure blood transfusions do not contain infections – in the spring and the matter had gone to the board over the summer.
He said other potential sell-offs were possible as Novartis examines whether three sub-scale businesses – vaccines and diagnostics, over-the-counter (OTC) products and animal health – have a long-term future in the group.
“We need to have global scale in these businesses and right now we’re in that process of gaining scale or considering other options for these businesses,” he said in an interview.
Asked whether Novartis might sell the animal health and OTC businesses, he said: “I wouldn’t want to speculate on the outcome. Our objective is to determine what it would take to gain global scale. If that is not possible, (selling) would be a potential outcome.
Novartis has three core businesses where it is either market leader or number two in various segments – pharmaceuticals, eyecare and generic medicines.
Investors are hoping the company will give more detail on how it plans to allocate capital between its different businesses at an investor day on November 22.
Global drugmakers have stepped up the pace of restructuring amid investor demands for management to return more capital to shareholders and unlock value trapped inside large firms.
THREE TIMES SALES MULTIPLE
The deal with Grifols gives Novartis a good price for the blood transfusion diagnostics unit, which was acquired in 2006 as part of Chiron and which had net sales in 2012 of around $ 565 million.
Novartis is keeping other diagnostics that are closely linked to its pharmaceuticals pipeline.
Vontobel analyst Andrew Weiss said the transfusion diagnostics business was one with no synergies to the remainder of the Novartis group and the price of three times sales seemed “fair” and in line with valuations in the sector.
For Grifols, the world’s third-largest blood products maker, the acquisition means diagnostics will now make up 20 percent of its revenue, up from 4 percent now, and that annual turnover in the business will grow to around $ 1 billion.
“The acquisition of Novartis’ diagnostic business is a step further into our vision to become a world leader also in the diagnostics field. To achieve this we knew we needed a significant presence in United States,” said Victor Grifols, chairman of the Spanish company.
Grifols shares rose 2.3 percent by 0835 GMT while Novartis added 0.5 percent as the European healthcare sector rose 0.4 percent.
Pharmaceutical deals have been among the brightest spots in a small merger and acquisition revival in recent months, with Amgen’s $ 10.4 billion purchase of Onyx Pharmaceuticals in the United States among bigger transactions.
Also on Monday, London-listed Shire said it had agreed to buy ViroPharma for about $ 4.2 billion to create a leading force in treatments for rare diseases.
Grifols said it would finance its purchase with a $ 1.5 billion loan, pushing up its debt to 3.2 times earnings before interest, tax, depreciation and amortization (EBITDA), according to a spokeswoman for the company.
The adjusted debt to EBITDA ratio was 2.6 times at the end of September.
The transaction requires regulatory approvals and is expected to be completed in the first half of 2014, the companies said.
(Additional reporting by Ben Hirschler and Jose Elias Rodriguez; editing by Patrick Graham and Mark Potter)
- Mergers, Acquisitions & Takeovers
- blood transfusion