Mylan Labs In Deal To Buy German Generic Drug Unit

Mylan Laboratories has agreed to buy the generic drug unit of Merck, the German drug maker, for 4.9 billion euros ($6.7 billion) in cash.

The acquisition will make Mylan the worlds third-largest maker of copycat versions of drugs, after Teva Pharmaceuticals of Israel and Novartis of Switzerland.

Mylan, based in Canonsburg, Pa., is paying more than its own market value to buy a company with annual sales almost double its own. Mylan won over companies including Teva in the four-month battle for the division.

Merck, based in Darmstadt, Germany, is selling the division to pay down debt from its $13.7 billion acquisition of Serono in January.

Its slightly on the expensive side, but I dont think they could have bought this kind of business any cheaper, said Rohit Bhat, a drugs analyst with Batlivala & Karani Securities in Mumbai. Mylan will more than double its revenue, so its worth the effort. These opportunities dont come around very often.

Interest in generic-drug companies is increasing as patents expire and governments seek ways to stem the rising cost of public health care.

It seems that Mylan saw a good fit here, because Merck has achieved a price that is right at the top of the range that we expected, said Jack Scannell, an analyst at Sanford C. Bernstein & Company in London.

Merck reported a first-quarter loss last month because of write-downs linked to the $13.7-billion purchase of Serono that made it Europes largest biotechnology company. While the company expects to report a profit this year, coming quarters will be tight, its chief financial officer, Michael Becker, said April 25.

Mylan expects to save $250 million three years after the acquisition, which will dilute earnings this year, it said. It expects the acquisition to start contributing to earnings after two years. It will keep the divisions management and said it would not make significant reductions in headcount to achieve its goals.

The deal will create a company with 10,000 employees and that would have had 2006 sales of about $4.2 billion, Mylan said.

The German Merck is not affiliated with the drug maker Merck & Company, based in Whitehouse Station, N.J..

Two years ago, Mylan failed in its $4 billion bid to buy King Pharmaceuticals, based in Bristol, Tenn., which makes the heart pill Altace.

Mylan specializes in copies of brand-name medicines that are difficult to make, like Johnson & Johnsons Duragesic pain patch and Ditropan XL bladder medicine. Exclusive sales of these generics have led revenue growth for the last six quarters, and new copies of Pfizers Norvasc blood pressure tablets gave the fiscal fourth quarter an extra push.

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