German chemicals and drugs group Merck KGaA has received multiple first-round offers for its generics drugs unit, signalling keen interest in a business that may fetch about $6 billion, people familiar with the situation said on Tuesday.
Bids were submitted by the 12 March deadline from Israel’s Teva Pharmaceutical Industries Ltd, Iceland’s Actavis and US-based Mylan Laboratories Inc.—the three firms seen by many analysts as the strongest contenders.
The global generic drugs business has seen a wave of mergers and acquisitions recently, as companies seek increased scale and geographical spread to take advantage of rising demand from governments and insurers for cheaper non-patented medicines.
The Merck business, which is no longer core to the German firm after its acquisition of Swiss biotech company Serono, is seen as a prize asset because of its foothold in many markets.
It sells a wide range of more than 400 medicines in Europe, North America, Australia, Brazil and South Africa.
The companies involved in the bids for Merck’s generics drugs unit have declined to comment, although Actavis said it was “still in discussions with Merck.”
India’s Ranbaxy Laboratories Ltd has also bid. “We submitted it yesterday,” a spokesman for Ranbaxy said, while denying media reports it had offered $6 billion.
Rival Cipla Ltd., meanwhile, has linked up with a private equity consortium—named by one Indian newspaper as being led by Kohlberg Kravis Roberts & Co and Warburg Pincus.
“We are a part of the consortium. We have not bid ourselves. We are not into acquisitions and mergers. We are into what we know best—technology and management of technology,” Cipla chief executive Amar Lulla said.
But a third Indian company, Dr Reddy’s Laboratories Ltd., said it had decided not to bid because the transaction was too large and the timing not right.
Industry analysts said absorbing Merck’s large generics operation would be a major challenge for Indian companies.
The Merck deal would also be a big stretch for Germany’s Stada Arzneimittel AG, whose status in the auction process was not immediately clear on Tuesday. Industry sources had said last week Stada was interested in bidding.
Other private equity houses interested in the business include Bain Capital and Apax Partners, which are working together, and Carlyle Group, other sources said.
“There seem to be quite a few bidders, which suggests there should be a good price,” said Ben Yeoh, a pharmaceuticals analyst at Dresdner Kleinwort. A surprise deal on Monday for Schering-Plough Corp to buy the drug operations of Akzo Nobel for a higher-than-expected $14.4 billion highlighted keen interest in mid-sized healthcare assets, he added.
Analysts at brokerages including Cazenove and Credit Suisse have said in recent reports that the Merck generics operation could fetch €4.5 billion ($5.93 billion) or more, and most analysts see €4 billion as a floor for offers.
The unit had sales of some €1.8 billion in 2006, ranking it fourth in the world behind behind Teva, Novartis AG’s Sandoz unit and Barr Pharmaceuticals Inc, which acquired Croatian drugmaker Pliva in October. Investment bank Bear Stearns is handling the sale on behalf of Merck, and the company and its advisers are expected to make a final decision on the unit by mid-year.