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Schering to buy drug unit of Akzo Nobel

Revenue from Organon Biosciences would increase the firm's sales by half. But the deal's debt raises concerns.

March 13, 2007|From the Associated Press

Schering-Plough Corp. said Monday that it would buy the drug unit of Netherlands-based Akzo Nobel for $14.4 billion, giving the U.S. pharmaceutical company an array of women's health products while bolstering its animal health business and late-stage pipeline of experimental medicines.

The approximately $4.9 billion in revenue from Organon Biosciences would bulk up Schering-Plough's sales by about half, and analysts applauded the Kenilworth, N.J.-based drug maker's effort to diversify and lessen its dependence on its cholesterol franchise. But they also expressed concern about the deal's debt and one key late-stage product, asenapine.

Pfizer Inc. returned the rights to asenapine, a treatment for schizophrenia and bipolar disorder, to Organon last year after it had mixed results in clinical trials. On Monday, Standard & Poor's Rating Services placed its rating on Schering-Plough on credit watch with negative implications because of the debt the deal would add, and Moody's Investors Service placed Schering-Plough's Baa1 senior unsecured rating under review for possible downgrade.

Schering-Plough Chief Executive Fred Hassan was upbeat about the deal.

"In a consolidating industry, there are very, very, very few companies left which have strong research ... and a strong pipeline of late projects and new projects that have a long patent life," Hassan said during a conference call.

Akzo's shares soared 19% in Amsterdam trading. Schering-Plough shares rose 10 cents to $23.95 in New York.

Schering-Plough said the transaction, which is expected to close by the end of the year, should add about 10 cents a share to earnings in the first full year after costs and adjustments. It expects to achieve $500 million in synergies from the deal over three years.

Hassan said the deal might result in some job cuts, but he did not specify any numbers. Organon has 19,000 employees, and Schering-Plough has 33,500.

The acquisition would be financed through a mix of cash, debt and equity, Schering-Plough said. New debt is expected to total $6 billion to $8 billion.

The deal would move Schering-Plough into two new treatment areas: women's health and the central nervous system. Sales of Organon's contraceptives, which include NuvaRing and Implanon, totaled $877 million, according to Schering-Plough. Revenue from Organon's pharmaceutical business, which includes an infertility treatment and a muscle relaxant, reached $3.4 billion last year.

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