Schering-Plough agrees to buy Akzo’s drug unit for $14.4bn

Schering-Plough Corp. on Monday agreed to buy Akzo Nobel NV's drugs unit Organon for $14.4 billion in a deal that will compliment its line-up of central nervous system and women's health-care products.

The Kenilworth, New Jersey-based Schering-Plough’s CEO Fred Hassan said that the acquisition of Organon Biosciences, the world's third-largest maker of birth-control pills and doing steady experiments on medicines, will be financed from a mixture of cash, equity and debt.

“Schering-Plough's cash position is very strong and we have a very good borrowing position and debt capability (so) we are very confident we can raise the financing (for the acquisition),” Hassan said during a conference call following the acquisition announcement.

After acquiring the pharmaceutical unit, Schering-Plough expects to achieve annual synergies of $500 million in the third full year, and also hopes the deal to boost earnings per share by 10 U.S. cents in its first full year, excluding purchase-accounting adjustments and acquisition-related costs.

Organon, which besides making human birth control, fertility and gynecological medicines makes animal medicines and vaccines, has 19,000 employees, while Schering, one of the world's largest drug companies, employs 33,500.

Folistim/Puregon for infertility, muscle relaxant Esmeron/Zemuron and NuvaRing and Implanon for contraception helped Organon's pharmaceutical business generate $3.4 billion in sales in 2006, while its animal health business Intervet had posted $1.5 billion in sales.

According to market analysts, despite Organon's main business in oral contraceptives and female health was not growing that fast, still the acquisition would give the U.S. drugmaker increased boost.

On the proposed ‘fantastic price’ for Akzo, analyst Danny van Doesburg at SNS Securities said, "The 11 billion euros disposal price for Organon BioSciences is much higher than we and the market anticipated."

Akzo Nobel plans to use the proceeds from the sale to buy back up to 1.3 billion euros of its shares as well as reduce pension liabilities and make acquisitions, prompting speculation that Akzo Nobel may buy Imperial Chemicals Industries (ICI) to boost its paints division.

After acquiring Akzo Nobel's pharmaceutical unit Schering-Plough will cut some jobs but staff reductions will be limited, CEO of the U.S. group said.

"This is really a growth-orientated merger," Hassan told media persona in the conference call. "There will be some reductions, because that is normal in these big combinations, but that's not the main focus."

Akzo expects to complete the sale of Organon Biosciences BV to Schering-Plough by the end of 2007, subject to regulatory approval.

Shares of Akzo rose 7.13 euros, or 15 percent, to 53.54 euros at 1:09 p.m. in Amsterdam. Schering-Plough shares rose to $23.89 today in German trading after closing at $23.85 in New York on Friday.

Shares of the U.K.'s largest specialty chemicals maker ICI rose as much as 8.4 percent to 503 pence in London.