UPDATE 1-Bayer agrees to buy Teva U.S. animal health business
* To pay $60 mln upfront, up to $85 mln in milestones
* Bayer reverts to smaller veterinary deals
* Expects to close deal in 2013 after regulatory clearance (Adds background, details)
FRANKFURT, Sept 14 (Reuters) - German drugmaker Bayer agreed to buy Teva's U.S. animal health operations for up to $145 million, as it looks to shore up its veterinary drugs business with smaller deals for lack of bigger opportunities.
The price includes an upfront payment of $60 million and a further $85 million in milestone payments linked to manufacturing and sales targets, Bayer said on Friday.
Bayer is reverting to a string of smaller steps to shore up its animal health unit, the industry's No.5 globally, after Pfizer refrained from selling its veterinary unit with $4.2 billion in annual revenue, opting to take it public instead.
"We keep our eyes open and assess any businesses that are on offer in the market," a Bayer spokeswoman said, adding that larger assets were currently not available.
Drugmakers, under pressure from patent expiries and cutbacks in healthcare budgets, are drawn to animal health because it offers more stable margins and growth potential, as pet ownership increases faster than the overall economy in emerging markets.
Earlier this year, people familiar with the matter said Bayer had sounded out debt funding options with banks to prepare for takeover opportunities, such as one that could have arisen from Pfizer's planned exit from animal health.
But Pfizer's Zoetis Inc unit filed for an initial public offering last month involving the sale of stock worth some $100 million.
Bayer Chief Executive Marijn Dekkers took the post in 2010 with a reputation for being able to handle transformational takeovers, but the Teva deal is the latest in a line of small and medium-sized acquisitions.
Dekkers has said he will try to boost the group's healthcare and crop protection and genetically modified seeds units via takeovers, but that organic growth remains a "key priority".
The German group expects to close the deal in 2013, once it gains antitrust and regulatory clearance. (Reporting by Ludwig Burger and Andreas Kroener)
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