Abbott To Sell Generic Drug Unit To Mylan In $5.3 Billion Deal

Abbott Laboratories announced that it is selling  its developed markets branded generics pharmaceuticals business to drugmaker Mylan. The deal will combine Abbott’s generic drug assets with Mylan’s existing business to form a new, publicly traded company.

The deal will provide Abbott with an estimated $5.3 billion in equity ownership of the newly formed company, according to a recent Abbott press release. The deal is expected to close in the first quarter of 2015.

According to the statement, Abbott will keep its branded generics pharmaceuticals unit in emerging markets, and other products in developed markets. Abbott will receive 105 million shares — or roughly 21 percent of the new business on a fully diluted basis. The business unit includes manufacturing plants in Japan and France; operating units in Europe, Japan, Canada, Australia, and New Zealand; and about 3,800 employees. Abbott said it plans to eventually sell its stake of the new entity and place net proceeds into other ventures that would add to its earnings in the long term.

The new entity — Mylan NV — will have a combined “portfolio of more than 100 specialty and branded generic pharmaceutical products in five major therapeutic areas,” including “several patent-protected, novel and hard-to-manufacture products,” according to the Wall Street Journal.

The company will also incorporate offshore in the Netherlands, enabling Pittsburgh-based Mylan to decrease its tax rate to 21 percent in the first year, and down to the high teens in subsequent years, according to Bloomberg. Such tax inversion deals have become more common in recent months, as U.S. companies seek more favorable tax rates by acquiring foreign counterparts and moving overseas. Reuters says at least 19 U.S. companies have made such deals since January 2012.

“We were the last Mohican standing,” Mylan CEO Heather Bresch, said in the interview with Bloomberg. “We’re the last in our sector to have announced an inversion or to be domiciled outside the U.S. [The move] gives us a very competitive landscape to pursue other opportunities.”

Last year, Abbott spun off its specialty pharmaceuticals unit as AbbVie Inc., and that company is nearing a close on its own tax inversion deal by acquiring Dublin-based Shire PLC for more than $53 billion, according to the report from the WSJ.   

The deals are among the latest in an ongoing wave of intensified M&A activity sweeping across the pharmaceutical and medical device industries. According to the New York Times, the total healthcare sector has already posted $328.8 billion worth of deals through July 10 — a 207 percent increase from the period a year earlier, and the numbers are expected to rise by the end of the year.

According to Joanne Wuensch, an analyst with BMO Capital Markets who was quoted in the Bloomberg story, Abbott may now direct its attention toward the medical device space. “We anticipate that with medtech in the consolidation phase, Abbott management can now turn its focus away from identifying carve-out opportunities, to other larger types of transactions,” Wuensch said in a note to clients. “The area that needs the most attention next, in our opinion, is its medical device segment,” including diabetes and optics.