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[IP] Roche Confirms Disetronic Buy
By Carey Sargent
ZURICH (Dow Jones)--Swiss pharmaceuticals company Roche Holding AG (RHHBY)
Monday confirmed long-standing market talk, saying it plans to buy Disetronic
Holding AG (Z.DIH), the world's second largest maker of insulin pumps.
Roche will offer Disetronic shareholders two Roche non-voting shares and CHF670
in cash for each Disetronic share, a premium of 57% over the shares' closing
price Friday. Roche said the cost of the acquisition will be around CHF1.6
billion, though Roche plans to sell the smaller of the company's two units back
to Disetronic founder Willy Michel for CHF425 million.
The move will bolster Roche's business in diabetes care, and will send a
somewhat costly signal that the company - which announced plans to sell off its
Vitamins and Fine Chemicals unit last year - is taking its pledge to focus on
core activities of pharmaceuticals and diagnostics through smaller acquisitions
and in-licensing seriously. The move should also give a boost to Disetronic,
which has had problems selling its products in the U.S.
"It's a heavy price, but not that (big) a deal from a Roche shareholder's point
of view," a strategist said. He added that the move could help remind the
market that Roche isn't just a pharmaceuticals company, but also a major player
At 1012 GMT, Roche shares were down CHF1.85 or 2.1% at CHF88.60. Disetronic
shares were up 52% at CHF823 on the offer.
"The price paid looks steep compared to current market valuations, but Roche
should be able to make it earnings enhancing from the beginning," Pictet
analysts said in a report. Pictet estimates Roche is offering the equivalent to
five times sales and 30 times earnings.
"Fending off other bidders shouldn't prove too difficult given the cultural
similarities and the decent premium being offered," the analysts added.
The deal is subject to approval by competition authorities and by Disetronic's
shareholders. Roche CEO Humer said he doesn't see any regulatory problems in
Europe or in the U.S.
Roche's offer must be accepted by at least 80% of Disetronic's shareholders for
the acquisition to take place, but Disetronic founder Willy Michel alone owned
34% of the capital as at the end of March 2002.
Humer said he expected shareholders to rubber-stamp the deal.
"Other large shareholders aren't known, so we assume that the deal will go
through," Zuercher Kantonalbank analyst Yasemin Ersan said. "We recommend the
acceptance of the offer."
ZKB analyst Patrick Burgermeister added that the purchase makes sense in terms
of complementary product lines.
Roche now makes the Accu-Chek line of blood glucose monitoring systems, which
allow diabetics to monitor their blood sugar levels.
Roche estimates that there are around 150 million diabetics worldwide and the
World Health Organization estimates that the figure will roughly double, to
around 300 million, by the year 2025. The disease - caused by an inability to
produce insulin properly - is associated with a number of serious conditions
and complications, including hypertension, heart attack and stroke.
The Roche Diabetes Care business unit posted total 2001 sales of CHF2.3 billion
and is the market leader, Roche said. Pictet said that the Disetronic deal will
add around 7% in sales to the total diabetes care business, but added that this
is less than 3% to the Roche diagnostics business overall.
Disetronic Infusion Systems unit makes products that deliver insulin to
diabetics. The company has had problems selling its products in the lucrative
Though the company originally cited after-effects of Sept. 11, analysts said
that competition from the launch of so-called 24 hour insulins like Aventis
SA's (AVE) drug Lantus and a competing pump product from competitor Minimed,
owned by Medtronic Inc. (MDT), likely had an effect on sales.
"Roche will provide an all important leg-up in the flailing U.S. insulin pump
market, where Medtronic has been cleaning up," Pictet said.
The Disetronic unit posted sales of CHF178 million in the first nine months of
its 2002/2003 business year - April to December 2002 - an increase of 11% in
local currencies over the year-earlier figure.
Roche reckons the insulin pump market is now worth around CHF700 million a
year, with an average growth rate of 11%.
"The main reason for our decision is to strengthen our position and to help
Disetronic address the problems it had in the U.S. market," Roche's CEO Humer
Company Web Site:<http://www.roche.com>;<http://www.disetronic.com>
-By Carey Sargent, Dow Jones Newswires; +41 1 211 6637;
email @ redacted
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