Japan's largest drugmaker Takeda Pharmaceutical is in talks to buy privately held Swiss rival Nycomed for more than $12 billion to extend its global reach into Europe and emerging markets, according to sources with direct knowledge of the matter.
The purchase would offer Takeda, a mainly Asian- and U.S.-focused maker of drugs for diabetes and heart disease, access to lung-disease drug Daxas, just approved in the United States, and a portfolio of over-the-counter consumer products.
Broadening Takeda's horizons and revenue base is key to its future success and could explain the hefty price, analysts say.
The suggested price looks high, but in the sector M&A is starting to happen and there are not enough companies to buy, Kepler Capital Market analyst Tero Weckroth said. Mid-cap pharma is a real sweetspot for M&A.
Credit Suisse analyst Fumiyoshi Sakai said Takeda has to survive as a global player. It's not in a position to go backwards.
One source said Takeda had approached a number of Japanese lenders who were prepared to help finance the deal, which is likely to exceed 1 trillion yen ($12 billion). Others said it could be worth about 10 billion euros ($14 billion).
Nycomed chief Hakan Bjorklund has talked of a possible IPO since at least 2008 and in 2009 the Wall Street Journal reported Goldman Sachs was hired to explore a sale of the company.
The group, which is now being advised by Goldman and Credit Suisse, also fielded approaches from several other suitors, one person familiar with the matter said. The prior approaches, which this person said began as U.S. approval neared of its lung drug, suggest a counter-bid now may be unlikely.
Takeda should be able to reap synergies which could run to hundreds of millions of euros a year, that source added.
Nycomed is well placed to deliver in faster-growing markets since emerging markets made up nearly two-fifths of its revenue in 2010 and should make up 60 percent of sales by 2015. Emerging markets sales leapt 30 percent last year.
A Nycomed deal would be Japan's second-biggest overseas takeover, Thomson Reuters data shows, after Japan Tobacco's $19 billion buy of Britain's Gallagher. It would be a second major deal for Takeda, which bought U.S. cancer drug specialist Millennium in 2008 for about $9 billion.
Another person familiar with the matter said the deal was in its final stages but may take time to conclude. The sources did not want to be identified as they were not authorized to speak to the media. Takeda and Nycomed both declined to comment.
Takeda, which has around 874 billion yen ($10.8 billion) in cash and marketable securities at hand, has previously said it would be willing to take on debt for future deals.
Nycomed has around 12,500 employees and had revenue of 3.2 billion euros in 2010, generating adjusted earnings of 851 million before interest, taxes, depreciation and amortization.
It has four R&D centers in Europe and India, 15 production facilities and two joint ventures in 13 countries.
Evolution Securities analyst Dominic Valder said a deal would give Takeda exposure to eastern Europe as well as access to Scandinavia and Nycomed's western European specialty pharmaceuticals distribution network.
The Swiss firm is majority owned by four private equity firms, led by Nordic Capital with a 41 percent. Credit Suisse's DLJ Merchant Banking has 25.6 percent, Coller International Partners 9.7 percent and Avista 8.9 percent.
Its lung drug roflumilast, known as Daxas in Europe and Daliresp in the United States, is the first in a new class of treatment for chronic obstructive pulmonary disease, a common breathing disorder often caused by smoking.
After some delays it won U.S. approval in March where Forest Laboratories has the marketing rights. In Europe, Merck & Co has marketing rights.
Another of Nycomed's top products is pantoprazole for heartburn, a field Takeda knows from its own Prevacid, a former blockbuster heartburn drug that has now lost patent protection.
Japanese drugmakers including Daiichi Sankyo and Astellas Pharma have pursued acquisitions to boost growth as they face patent expiries on key medicines.
Takeda has previously unsuccessfully explored takeovers of other European drugmakers including Organon, ultimately sold by Akzo Nobel NV in 2007 to Schering Plough, and Sweden's Meda AB, two people familiar with those talks said.
Sources said Takeda had hired Deutsche Securities as an advisor. Takeda's shares ended 1.4 percent lower, in line with the Nikkei benchmark index.
Takeda said on Wednesday it expects operating profit to increase 6.2 percent to 390 billion yen in the year to March 2012. It sees operating profit falling to 240 billion yen two years later, hurt by patent expiry on diabetes drug Actos.
Last year, Nycomed paid around $210 million for 51.3 percent of Chinese company Guangdong Techpool Bio-Pharma, underscoring its focus on emerging markets and Western manufacturers' hunger to boost their presence in the country.
(Writing by Kate Kelland, additional reporting by Taro Fuse, Ritsuko Shimizu, Antoni Slodkowski, James Topham and Junko Fujita in TOKYO, Katie Reid in ZURICH and Renju Jose in BANGALORE; Editing by David Holmes)
($1 = 81.065 Japanese Yen)