Novartis to Buy Rest of Chiron for $5.1B

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Novartis to Buy Rest of Chiron for $5.1B

By SAM CAGE, Associated Press Writer
Mon Oct 31, 7:59 AM ET

Note: Chiron has a production facility in the City of Vacaville located in Solano County.

Swiss pharmaceutical maker Novartis AG said Monday it agreed to buy the 58 percent of Chiron Corp. that it does not already own for $5.1 billion, improving a previous offer that the embattled biotechnology company had rejected.

Novartis, which made an initial $4.5 billion proposal last month that was rejected by the second-largest vaccine maker in the United States, said it had sweetened its offer to acquire approximately 113 million Chiron shares for $45 each in cash.

That represents a 23 percent premium over Chiron's closing price on Aug. 31, the last trading day before Novartis proposed buying the shares at $40 each, the Basel, Switzerland-based company said. Shares of Chiron rose 85 cents, or about 2 percent, to $44.25 in pre-market trading.

Chiron's board had called that offer "inadequate," but has recommended that shareholders vote to approve the new offer.

Vaccines will form a new business unit at Novartis, while Chiron's biopharmaceuticals will be integrated into the Swiss company's existing pharma business, said Novartis Chairman and Chief Executive Daniel Vasella.

"Our plan is to turn around the Chiron vaccines business, which will require investments in R&D and manufacturing to increase quality and capacity, so that we can better meet customer demand and address public health needs," Vasella said.

The transaction will give Novartis entry into a "dynamic growth market," while strengthening Chiron's ability to meet patients' needs with high-quality vaccines, the company said.

Annual cost synergies of $200 million are anticipated within three years of closing the deal, with half expected to be achieved in the first 18 months, Novartis said.

Chiron has been crippled this year by plunging profits and surging expenses resulting from a vaccine debacle last year, when problems at its British production facility kept it from delivering any of its Fluvirin flu vaccine to the United States. Chiron had been slated to supply about half the nation's vaccine.

Similar problems at a Chiron vaccine plant in Germany this year also forced the company to scrap plans to supply the European flu shot market.

Chiron's 2004 profit of $156 million and revenue of $1.7 billion was about half of what the Emeryville, Calif.-based company earned in 2003. Novartis had profits of $5.8 billion and $28.2 billion in revenue last year and is the world's sixth-largest drug company.

Last week, Chiron Corp. reported its third-quarter earnings nearly doubled from last year to $51 million on revenue of $479.6 million. Most of the profit improvement was because the manufacturing problem was in the third-quarter of last year.

Chiron called the latest quarter a "turning point" because federal regulators have approved its first batches of flu shots, about 1.5 million, for delivery. The company offered no further guidance on how many flu shots it expects to deliver this year.