AstraZeneca Agrees to Buy
MedImmune for $15.6 Billion

AstraZeneca PLC said it will pay $15.6 billion in cash to buy MedImmune Inc, in a deal that will transform the size of its biotechnology business and allows it to enter the vaccines market.

The takeover will allow the British pharmaceutical company, which has suffered from a string of setbacks with drugs under development over the last two years, to strengthen its pipeline as it complements it with experimental biological treatments and vaccines.

It does so at a heady valuation -- AstraZeneca is paying 12 times 2006 revenues. The price of $58 a share represents a 21% premium on MedImmune's closing price Friday of $48.01. By 2009, AstraZeneca expects to save around $500 million a year from the combination of its businesses with those of MedImmune.

AstraZeneca's shares declined in reaction to the deal, because the takeover is draining its cash pile and will probably dilute earnings this year and next. In midday trading in London, the stock was down 3.6% at £28.48 ($57.06), the biggest decliner on a slightly lower FTSE 100.

The deal, which AstraZeneca hopes to close in June, would increase the proportion of biotechnology drugs in the British drugmaker's pipeline to 27% from 7%.

The takeover of MedImmune "creates a leading fully integrated biologics and vaccines business with critical mass and enhances AstraZeneca's research and development science base through which we will deliver a stronger product pipeline," said Chief Executive David Brennan in a statement.

MedImmune is bringing two late-stage assets to the table. One is a next generation follow-on to flagship product Synagis, which is used to prevent respiratory syncytial virus, or RSV, in babies. The second is a refrigerated formulation of its FluMist influenza vaccine, which will probably be launched in the coming U.S. winter season. The U.S. vaccines and biotechnology company will also be adding around $1.2 billion to annual sales, the company said.

Deutsche Bank pharmaceutical analysts, who have a buy rating on the stock, in a note to investors said "The acquisition significantly accelerates and reduces the execution risk of AstraZeneca's biologicals strategy in creating a leading fully integrated biologics and vaccines business to complement the existing largely small molecule approach."

By entering the vaccines market, AstraZeneca is following in the footsteps of Novartis AG, which last year acquired U.S. vaccines maker Chiron. Among European drug companies, GlaxoSmithKline PLC and Sanofi-Aventis SA also have large vaccines business.

Big pharmaceutical companies are rediscovering vaccines as a growth opportunity after years of neglect, attracted by a market with few producers and a reduced risk of generic competition.

The emergence of a deadly strain of avian flu a few years ago, and the lack of a vaccine that would protect against it, has persuaded many governments to guarantee companies the purchase of certain vaccines, to encourage research on new ones.

The deal was earlier reported by the Wall Street Journal. The newspaper said at least four large companies were involved in a bidding process for MedImmune, prized for its collection of drugs for respiratory viruses and influenza, but whose stock faltered during 2006 and came under pressure from investor Carl Icahn.

David Brennan, Chief Executive Officer of AstraZeneca, said that the bidding process for MedImmune had been "ferociously competitive," and that bids were sealed during the course of Sunday. "We are delighted to have won against all of our peers in the pharma industry," he told reporters on a conference call to discuss the deal.

AstraZeneca plans to keep up its $4 billion share buyback program, but Chief Financial Officer Jon Symonds said he doubts a possible buyback program next year will be as big as the current one. He added that "we have always said our share buybacks are opportunity dependent."

The takeover of MedImmune is obviously reducing the company's cash reserves and AstraZeneca's board of directors will decide on the size of a possible buyback toward year-end, he said.

AstraZeneca brought forward the release of its first quarter results due to the deal, saying net profit rose 9.8% to $1.56 billion, while sales increased 13% to $6.97 billion, ahead of analysts' forecasts which had called for $6.55 billion. The company benefited from the strong dollar as sales at constant exchange rates rose at a slower pace of 9%.

Andrew Fellows, analyst at Swiss broker Helvea in London, who has a neutral rating on the stock, said "The quarterly figures are broadly in line and show again that although AstraZeneca is able to deliver healthy growth in the short term, both in terms of top line and operating income, the real concerns lie in the ability of the company to deliver from its ailing pipeline, and hence the need for an acquisition for a company such as MedImmune."

AstraZeneca's top drugs performed well during the quarter, with heart-burn drug Nexium up 10% to $1.31 billion, schizophrenia treatment Seroquel up 14% to $923 million and sales of cholesterol drug Crestor rising 62% to $628 million.

AstraZeneca said it was still on track for reaching its target earnings per share in 2007 of $3.80 to $4.05, excluding any contribution from U.S. sales of Toprol-XLTM and restructuring costs. It said it expects $250 million in charges relating to supply-chain restructuring in 2007, about half the total to be incurred.

Nestle to Buy Gerber for $5.5 Billion

Nestle SA, the world's largest food company, will buy U.S. baby-food giant Gerber from Novartis AG for $5.5 billion in cash, becoming the world's biggest baby food company.

Nestle said on Thursday the cash transaction would give its nutrition division -- which includes infant formula, baby food, medical nutrition and weight management -- annual sales of about 10 billion Swiss francs ($8.21 billion).

Gerber, which has been making strained peas and carrots since 1928, is expected to generate an estimated $1.95 billion in sales in 2007 and will improve Nestle's operating profit margin immediately, the Swiss-based company said.

Nestle, already the world's biggest maker of infant formula, now moves into the top position in baby food as well through the Gerber buy. Nestle said it aimed to expand Gerber operations globally.

``This is like an iceberg where you only see the tip of it,'' Richard Laube, head of the nutrition division, said in a conference call.

Nestle's has lacked a baby food brand in the United States and has been eager to buy Gerber for more than a decade.

Nestle recently bought Swiss-based Novartis's medical nutrition business for $2.5 billion as it moves its earnings focus away from mass items like bottled milk to high-margin products like made-to-order diet plans and hospital food.

NOVARTIS TRANSFORMATION

Novartis, the world's fourth-biggest pharmaceuticals company, said it planned to complete the Gerber sale in the second half of 2007, marking the end of its transition to a group focused 100 percent on healthcare.

After the sale Novartis, which makes drugs such as Diovan for hypertension and Glivec for leukaemia, will generate all its revenue from healthcare as compared to 1996 when the segment accounted for 45 percent of its revenue.

Nestle, the maker of Nescafe coffee, KitKat chocolate bars and Perrier water, first tried to buy Gerber in the early 1990s, but lost out to Sandoz, which later became part of Novartis.

Shares in Novartis were near flat at 67.10 Swiss francs, while Nestle shares were down 1.3 percent at 483.25 francs.

Analysts at Vontobel called the deal a ``perfect fit'' for Nestle and reiterated its ``sector outperform'' rating.

``Nestle currently only holds fourth place in infant/baby foods in the U.S., so this will secure a clear leadership position,'' Vontobel said.

Nestle said on its website that the deal would be neutral for underlying earnings per share (EPS) in the first full year after the purchase and accretive in the second full year.

In addition, Nestle said it expected cost synergies of $95 million by 2011, after around $70 million in integration costs for severance and relocation pay.

Kroger Moves Into Sights
Of Private-Equity Shops

Private-equity firms have in recent days been training their guns on a big target: Cincinnati-based grocery giant Kroger Co.

People familiar with the matter say a number of firms across the Street have been eyeing Kroger, which carries a market capitalization of more than $20 billion, on the expectation that the company will soon begin exploring a leveraged buyout with the help of investment bank Goldman Sachs Group Inc. It remains unclear whether such expectations will pan out.

The market for leveraged takeovers has been whipped into a frenzy in the past few years, as many public companies have been subject to buyout rumors. But the specificity of discussions around Wall Street suggests there is a lot of behind-the-scenes movement around the grocer, which runs nearly 2,500 stores across 31 states under such brands as Kroger, Ralph's and Fred Meyer.

Such a deal would represent a kind of bookend for today's leveraged-buyout craze and the LBO period of some 20 years ago. Back in 1988, buyout shop Kohlberg Kravis Roberts & Co. placed a $4.6 billion bid for the grocer, but was rebuffed after the company decided to take on debt of its own through a leveraged recapitalization. KKR had previously bought supermarket chain Safeway Stores Inc., in 1986.

The conditions of the current buyout market aren't that dissimilar to the 1980s. Big buyout shops such as KKR, Blackstone Group and TPG, formerly Texas Pacific Group, have amassed huge war chests and have to put that money to work. A company like Kroger would allow them to spend a big chunk of money in one place.

These buyout shops have also been attracted to retail businesses, where the underlying value of the firms' real estate may help undergird the prices they are willing to pay.

It is still a tough time to be in the supermarket business. Traditional grocers like Kroger are getting squeezed on the high end by Whole Foods Markets Inc., which in February agreed to acquire rival Wild Oats Markets Inc., and on the low end by discount retailers such as Wal-Mart Stores Inc., which in 2001 displaced Kroger as the nation's largest food seller.

In the past 12 months through February, Kroger notched $66 billion in revenue and net income of $1.1 billion, according to figures compiled by data service Capital IQ. The firm also has about $7 billion in outstanding debt, a figure that a company official recently acknowledged was "at a very reasonable level." Kroger shares have moved up more than 40% in the past year and in 4 p.m. New York Stock Exchange composite trading yesterday were at $29.11, just cents off the 52-week-high.

Such strong price movements tend to discourage LBO buyers, as they make the returns of such deals less attractive. Any move would certainly up the ante in the grocery-store wars.

Supervalu Inc., parent company of Save-A-Lot stores, last June bought most of Albertson's Inc.'s grocery stores in a $9.7 billion deal, making Supervalu the nation's No. 2 grocery chain by revenue, behind Kroger Co.

Roche to Buy BioVeris for $600 Million

Roche, one of the world's largest diagnostics firms, is buying Gaithersburg-based BioVeris for $600 million in cash, giving the Swiss company unfettered control of powerful testing technology used in life sciences research and drug development.

The companies said Roche would pay $21.50 a share for BioVeris, a 58 percent premium over the company's market value on Tuesday. The deal, which is subject to shareholder approval, could be worth about $114 million to BioVeris chief executive Samuel J. Wohlstadter, who owns 20 percent of the company.

Shares of BioVeris surged 52 percent yesterday, closing at $20.66.

BioVeris and Roche have had a long, complicated and often unpleasant David vs. Goliath relationship, in large part because of electrochemiluminescence, a word that most investors have a difficult time getting off their tongues. ECL, as it is commonly known, is a technology that makes certain biological agents light up so they can be more easily measured.

It was developed in the 1980s by Igen International, a company founded by Wohlstadter. In 1992, in a deal that bolstered the fledgling company, Igen licensed the technology to a company later bought by Roche. But things started to unravel about five years later, when Igen sued Roche in federal court over a dispute about licensing fees.

Igen won more than $500 million in damages, but the U.S. Court of Appeals for the 4th Circuit later threw out most of the award in 2003. However, the court also ruled that Roche had violated its contract to sell the testing technology and said Igen could terminate the licensing agreement. So Igen did, giving Roche's business the equivalent of a punch in the face.

Less then a month later, in a somewhat unusual deal, the companies announced that Roche was buying Igen for $1.4 billion and that Igen would be spun off to its shareholders, creating a firm eventually called BioVeris. As a result of the deal, Wohlstadter ran BioVeris, which continued to own the ECL technology, and Roche got another licensing agreement to sell the ECL tests.

But the licensing deal limited the market for Roche to sell the test, and there were signs recently that BioVeris executives thought Roche was violating that agreement. In January, BioVeris said in a filing with the Securities and Exchange Commission that it was appointing an independent auditor to examine Roche's sales and accounting records relating to the ECL technology.

If the deal is approved, the squabbles will end and Roche will own all the rights to the test. "We finally own the patents," Roche spokesman Baschi Duerr said. "We can fully exploit the technology from a sales perspective."

Duerr said Roche had been limited to selling the technology in the human diagnostics market, producing about $1 billion in revenue. Now Roche can expand into life science research, veterinary testing, drug discovery and human clinical trials. The additional markets represent several hundred million dollars in revenue potential, Duerr said.

BioVeris executives declined an interview request. In a statement, Wohlstadter said: "Given the history between the parties and the scope of Roche's existing diagnostics business, Roche is the natural buyer for BioVeris."

It is not clear what the deal means for BioVeris's 200 employees in Gaithersburg. Duerr said Roche was examining the situation and "considering various options."

Smucker acquires Eagle brands

Purchase will close company's Gahanna headquarters

One of the oldest brands on grocery shelves, Eagle Brand condensed milk, has been purchased by the J.M. Smucker Co. of Orrville.

Smucker will pay $248 million to acquire Eagle Family Foods Holdings Inc., which bought the Eagle brand and others from Borden Inc. in 1998.

The move will force the closing of Eagle Family's Gahanna headquarters, where 45 people work. Smucker said some workers will have the chance to transfer to Orrville.

Smucker also is acquiring Eagle Family's Magnolia sweetened condensed milk brand, None Such mincemeat, Borden Eggnog and Kava acid-neutralized coffee.

"There's a bittersweetness to this," said Craig Steinke, Eagle Family's president and chief executive. "There's an extraordinary amount of pride from the associates that we got the company to this point, but sad news that the culture and the team are going to come to an end."

Smucker plans to continue operations at Eagle Family's manufacturing plants in Seneca, Mo., and El Paso, Texas, where 155 work. The deal is expected to be final May 1.

Eagle "is definitely another icon brand and we're very pleased to add that to the Smucker family of brands," spokeswoman Maribeth Badertscher said. "It is actually older than the Smucker brand."

Condensed milk was the genesis of the Borden empire.

In 1857, Gail Borden Jr. opened the New York Condensed Milk Co. a year after patenting a process that allowed milk to be stored without refrigeration. By the 1930s, Elsie the Cow was the well-known mascot for the brand.

Borden expanded over the years into a variety of food products, glue and chemicals, among other things. In the early 1970s, Borden moved its administrative headquarters and management of the Eagle Brand to Columbus, although executive offices remained in New York.

By 1989, the company had $7.65 billion in sales and 2,000 employees in Columbus. But the economic downturn in the early 1990s hit Borden hard, debt rose and competition increased.

In 1994, Kohlberg Kravis Roberts & Co. bought Borden and started selling off pieces of the company.

Eagle Family, which is privately held, was formed by GE Investment Private Placement Partners II and Warburg Pincus Ventures. Today, Dairy Farmers of America is also a co-owner of Eagle Family.

Smucker's size provides bargaining power with food retailers such as Wal-Mart and Kroger, who have grown in recent years, Steinke said.

Cadbury Plan Attracts Partners

Potential partners for both Cadbury Schweppes PLC's candy and drinks businesses are lining up quickly, just two weeks after the company said it plans to split in two later this year, according to people familiar with the situation.

The door is open for its candy business to pursue a combination with U.S. rival Hershey Co., in a surprise reversal from 2002 when the charitable trust that controls Hershey blocked a sale of the company at the last minute. LeRoy Zimmerman, chairman of the board of the trust that has 78% of the voting rights for Hershey, said in an interview Friday: "We have a responsibility to listen to all potential possibilities that might come forward." He added, "It's important that the Hershey Trust stay focused on keeping the company competitive and profitable in this global economy."

For his part, Cadbury Chief Executive Officer Todd Stitzer, speaking to analysts in London earlier this week, said a merger with Hershey would make sense because the two companies' businesses are highly complementary.

Hershey has a market capitalization of $12.6 billion. Cadbury's confectionery business is valued at about $17 billion, analysts estimate.

Food companies are feeling pressure to consolidate to gain greater leverage when negotiating with retailers to stock their goods. A combined Hershey-Cadbury brand portfolio, which would include Cadbury's Trident and Dentyne gum as well as Hershey chocolates, would make it easier to persuade supermarkets and convenience stores to provide prime shelf space, such as next to the cash register. For years, there have been fits and starts, but the big wave of deals that was expected by many hasn't happened yet.

Meanwhile, it is looking increasingly likely that Cadbury will sell its drinks business, which includes Dr Pepper, 7 UP and Snapple, to a private-equity buyer. A number of private-equity companies have discussed their interest in the business, which is the No. 3 soft-drinks maker in the U.S., by sales, after Coca-Cola Co. and PepsiCo Inc., people familiar with the matter say. Among others, Lion Capital, Blackstone Group and Kohlberg Kravis Roberts & Co. are interested, people familiar with the matter said. Blackstone declined to comment and Lion couldn't be reached. KKR declined to comment.

Selling to a rival drinks company would slow down a deal as it would raise antitrust issues and Cadbury isn't likely to break up the drinks business and sell off individual brands, according to people familiar with the situation. Cadbury could also spin off the drinks business as a stand-alone, publicly traded company, an option it laid out two weeks ago.

Cadbury hasn't started a formal auction for its drinks business, and any deal likely won't happen until after June 19, when Cadbury has said it will provide a public update on its breakup plans, people familiar with the matter said. If it goes with private equity, a sale could take place as soon as the late summer, they added.

On the candy side, a combination of Hershey, the largest candy company in the U.S., and Cadbury, the world's biggest candy company by market share, would make sense, analysts and bankers say. The global candy market remains very fragmented, with Cadbury holding only 10%. Hershey is weak in Europe and in the developing markets -- both places where London-based Cadbury is strong. Also, the companies' management teams have a relationship because Hershey distributes Cadbury's chocolate in the U.S.

The Hershey Trust Co., trustee of the Milton Hershey School Trust, hasn't yet had contact with Cadbury, Mr. Zimmerman said. A spokesman for Hershey declined to comment. A spokeswoman for Cadbury also declined to comment.

If he attempts to join with Hershey, it would be the second go-around for Mr. Stitzer, a consummate deal maker who will be CEO of the candy company after the breakup. In 2002, the trust put Hershey on the block and Cadbury teamed up with Nestlé SA to jointly bid $10.5 billion before the trust called off the auction.

Since then, Hershey has faced a slowing chocolate market as consumers opt for healthier items. Cadbury's portfolio is heavier in such items as gum and less-fatty hard candies. Hershey's stock is down 18% from its 2005 peak.

When Cadbury bought U.S. brands Trident, Dentyne and Hall's in 2002, it became the only candy company with large shares in chocolate, sugar confectionery and gum. The move has reinvigorated the company, given that sales of gum are rising about twice the rate of chocolate globally.

Any takeover of Hershey could encounter opposition from local communities and politicians in Pennsylvania. In 2002, the potential sale caused an outcry among residents of Hershey, Pa., who worried it would endanger the Milton Hershey School for disadvantaged children, the primary beneficiary of the trust. But, Thursday, Kevin Harley, press secretary for the Pennsylvania attorney general's office, said, "We do not have the ability to intervene in the lawful business decisions of publicly traded companies such as Hershey."

Any bid for Hershey could also prompt a move from Wm. Wrigley Jr. Co., which was poised to win the company in the 2002 auction. A Hershey-Cadbury combination would be bad news for Wrigley. The Chicago company has been trying to expand beyond gum and become a broader confectionery company, similar to the Cadbury model. Wrigley declined to comment.

Heineken may acquire Scottish & Newcastle

Brits may love their beer, but it seems the Dutch are even keener to keep on brewing the stuff. Holland’s Heineken is the largest brewer in Europe, and it could get even bigger if rumors that it will soon launch a takeover of British rival Scottish & Newcastle prove true.

Shares in Scottish & Newcastle were up 12.1%, to 595.0 pence ($11.68), at the end of Thursday trading in London. The company makes Foster's, Kronenbourg 1664 and Strongbow brands.

The volume of trading was ten times higher than normal at 45 million shares, indicating a large amount of the stock was being bought.

Scottish & Newcastle has seen modest operating profits, up 1.5% to £206 million ($404 million) in 2006, and its market share for beer and cider increased 0.9% in the same time period.

The company has a 50% holding in Russia’s Baltic Beverages Holding, and a 37.5% holding in United Breweries, India’s second biggest brewer.

Analysts believe Heineken would most likely be interested in these emerging markets footholds. Scottish & Newcastle’s Russian presence in particular would complement Heineken’s existing business there.

“That’s the jewel in the crown,” Ben Maitland, an analyst at West LB, told Forbes.com. Scottish & Newcastle’s Russian operations account for about a third of its revenue, with much of the rest coming from the already-saturated markets of Britain and France.

“Those markets are very mature and in decline,” said Maitland. “If Heineken did go ahead and complete an acquisition, then my view is they would sell off those parts of the business and keep the positions in other emerging markets like India and China.”

Other beer makers in the British Isles seem to have been flourishing recently. Ireland’s C&C had its delectable Magners Cider to thank for operating profits that rose 66% to $151 million for the first half of 2006.

Shares in Heineken were up 91 euro cents ($1.21), or 2.4%, at 38.89 euros ($51.85), at the close of trading in Amsterdam on Thursday.

Roche to buy CuraGen subsidiary

Roche Holdings AG agreed to acquire CuraGen Corp.'s majority-owned subsidiary 454 Life Sciences for up to $154.9 million in cash, the drug makers said Thursday.

Roche will pay $140 million in cash to 454 Life Sciences shareholders and up to about $14.9 million in stock options.

454 Life Sciences and Roche entered a research and marketing collaboration in May 2005. Roche will operate out of the Branford facility, and CuraGen will continue to work on three cancer drug candidates with the hopes of bringing one to late-stage development by 2008.

CuraGen said it entered the deal to gain liquidity on its investment and bring its cancer treatments to market.

The companies expect the transaction to close in the second quarter.

Shares of CuraGen rose 16 cents, or 4.2 percent, to $4 in morning trading on the Nasdaq Stock Market.