Bayer pays $2.9 billion for Roche unit

Bayer AG will buy Roche's over-the-counter drugs unit for 2.38 billion euros ($2.94 billion), the German group said on Monday, paying slightly more than expected to boost its healthcare profits.

The deal comes shortly after Bayer's decision to spin off to shareholders its Lanxess chemicals unit, representing a fifth of sales, and furthers the transformation of the 141-year-old chemicals and drugs group often criticized as slow to change.

Bayer said the deal with Switzerland's Roche  would create a global consumer healthcare company with sales of 2.4 billion euros, ranking among the world's top three along with Johnson & Johnson  and GlaxoSmithKline Plc.

It would bring under one roof Bayer's painkiller Aspirin and antacid Alka-Seltzer and Roche's Rennie digestive tablets. Analysts said the price was better for Roche than for Bayer, although the acquisition made good sense for the German company.

"It's strategically the right move (for Bayer), though a touch expensive," said Sal. Oppenheim analyst Ludger Mues. A Swiss-based analyst said: "The sale price is above my forecast and that of the market. It is certainly good as it enhances Roche's financial flexibility."

At 2.38 times sales of one billion euros, the deal is more expensive than Omega Pharma's much smaller acquisition of 60 Pfizer OTC and personal-care brands in May for 135 million euros, or 1.68 times sales.

In recent weeks analysts have said a price of 2.2-2.3 billion euros would be ideal for Bayer.

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The acquisition will have a positive impact on Bayer's earnings from 2006, though the Leverkusen-based firm will take a hit of 0.25 euros in earnings per share next year as a result of the acquisition, which will be financed by existing facilities.

Bayer expects annual synergies of 100-120 million euros from the deal, to be realized gradually over the next three years.

The enlarged consumer healthcare company will have 6,700 employees in 120 countries. It will be headed by Gary Balkema, now president of Bayer HealthCare's consumer care unit, and headquartered in New Jersey in the United States.

The acquisition includes Roche's stake in a U.S. over-the-counter drugs joint venture with Bayer -- not originally part of assets Roche wanted to sell -- but leaves out the OTC business of Japanese company Chugai Pharmaceutical Co. Ltd., in which Roche has a majority stake.

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It will provide Bayer five Roche OTC production sites, in Germany, France, Argentina, Morocco and Indonesia.

Roche Chief Executive Franz Humer told a conference call that the company's major disposals were now completed, and that money from the OTC deal would be used to strengthen the balance sheet and to expand the firm's core business.

Reuters reported last month that the deal would include the U.S. joint venture and cited an industry source saying it would cost "a couple of hundred million euros" more than 2 billion.

The deal will boost Bayer's healthcare division, which has struggled in recent years from a poor pipeline of new products and a costly recall of anti-cholesterol drug Baycol, now linked with 100 deaths.

Analysts said Bayer still had plenty to do to bring its drugs business up to scratch.

"The deal strengthens consumer care, but doesn't solve the problems in pharma," said Sal. Oppenheim's Mues.

Separately, Roche said it granted an exclusive license to GlaxoSmithKline for U.S. non-prescription rights to orlistat, an anti-obesity drug marketed by Roche as a prescription medicine under the brand name Xenical.

The agreement provides for an up-front payment of $100 million and additional payments on the achievement of agreed milestones and royalties.

Bayer was advised by Goldman Sachs and Credit Suisse First Boston.