Magazine article Global Finance

Drug Mergers Ease M&A Drought

Magazine article Global Finance

Drug Mergers Ease M&A Drought

Article excerpt

The need for bigger drugdevelopment pipelines and more diversified businesses with greater geographic reach is fueling a wave of mergers in the pharmaceutical industry that is providing investment bankers with some muchneeded underwriting fees. It is also giving bankers an opportunity to show that they are still lending to creditworthy borrowers, despite the credit crunch.

Merck and ScheringPlough agreed to merge last month in a $41 billion deal that would create the world's second-largest pharmaceutical company. "The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets," says Richard Clark, chairman, president and CEO of Merck, who will head the merged entity, which will keep the Merck name.

J.P. Morgan, Merck's financial adviser, has committed to provide $8.5 billion of financing for the transaction through a loan that it will syndicate at a later date. Goldman Sachs and Morgan Stanley are advising Schering-Plough.

In late January New Yorkbased Pfizer, the world's biggest drug maker, agreed to pay $65 billion for rival Wyedi in a move also designed to strengthen its new-product pipeline. Pfizer plans to borrow $22.5 billion from a group of banks, including Goldman Sachs, J.P. Morgan, Citi and Bank of America.

Meanwhile, as Global Finance went to press, California-based biotechnology company Genentech was weighing an offer from Roche Holding, its majority owner, to acquire the remaining 44% of its shares that Roche did not already own. Roche, Switzerland's biggest drug maker, sold $16 billion of bonds in the US to help fund its bid, which valued Genentech at $47 billion.

The big pharmaceutical companies are facing growing competition from generic drugs as they lose patent protection on blockbuster drugs developed in the 1990s. …

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