LeaderShift Blog

Can Kraft pull off an acquisition of Cadbury Schwepps or Danone?

The world's second-largest food company, Kraft Foods Inc., sees large acquisitions being difficult to make ahead of its full spin-off from majority owner Altria Group Inc.

"Very large acquisitions will be difficult as the Altria situation precludes acquisitions using a lot of stock," Kraft Chief Executive Officer Roger Deromedi told Reuters in an interview on Wednesday.

He declined to define the size of a very large acquisition.

Altria, which owns cigarette maker Philip Morris and almost 87 percent of Kraft, needs to clear a number of legal hurdles regarding tobacco litigation in the United States before it can spin off Kraft completely.

Analysts have speculated that Kraft may look to buy France's Danone or Britain's Cadbury Schweppes Plcto expand out of its North American heartland, which still accounts for some 68 percent of group sales.

Kraft, the group behind Maxwell House coffee, Oreo cookies and Philadelphia cheese, has not made a big acquisition since buying Nabisco in 2000 when it was fully owned by Philip Morris, but says it is looking to expand in its four key category areas.

Kraft, second only to Swiss-based Nestle in the food world, makes 55 percent of its sales from its four key areas of coffee, cheese, cookies and beverages and says it is looking the expand these businesses around the world.

"We are focused on our global core areas and acquisitions in these areas," said Deromedi, adding that the group will gain "greater flexibility" to make acquisitions once the spin-off from Altria is completed.

In Europe, Kraft's business is largely focused on coffee, its regional chocolate business Suchard and some cheese, and although Deromedi is looking at organic and acquisition-led growth he sees Europe as a challenging market with poor economic growth, a tough retail environment and high company valuations. "Valuations in Europe are high as a lot of private equity groups have flooded the market," he said.

Pinnacle Foods names CEO

Pinnacle Foods Group Inc. said today it appointed Jeffrey P. Ansell, a 25-year veteran of Procter & Gamble Co., as chief executive officer.

He replaced C. Dean Metropoulos, who said previously he would step down as chief executive but remain chairman of the company, which has corporate offices in Cherry Hill and Mountain Lakes, N.J.

Ansell most recently was president of The Iams Co., a P&G pet-food unit. His experience includes management and marketing positions in P&G's food and baby-care divisions. Pinnacle's product lines include Vlasic pickles, Swanson frozen dinners, Duncan Hines baking mixes, Armour canned meats, Open Pit barbeque sauce and Lender's bagels.

Pinnacle was formed in 2001 to buy a portion of bankrupt Vlasic Foods International Inc. Vlasic was created in 1998 as a spinoff of Campbell Soup Co. of Camden.

Merck to sell Schering stake to Bayer

Merck KGaA agreed Wednesday to sell its 21.8 percent stake in Schering AG to Bayer AG, clearing the way for Bayer to take over Schering and end a merger drama that saw Merck in a position to block the takeover.

Merck will get 89 euros ($111.18) a share, compared with the 88 euros ($110.62) Bayer had said this week it was prepared to pay for Schering and above its initial 86 euros ($108.16) per share offer.

Bayer said that shareholders who had already tendered their stock for the deal would also receive 89 euros a share.

 

 That means the total value of the deal is now estimated at about 16.9 billion euros ($21.2 billion), about 400 million euros ($501 million) more than Bayer's initial offer.

Shares of Bayer jumped nearly 8 percent to 33 euros ($41.48) after the announcement, reversing an earlier slide, while Merck shares jumped more than 5.6 percent to 72.30 euros ($90.88). Shares of Schering rose more than 2 percent to 88.96 euros ($111.83).

Bayer also said that, as part of the deal, it would withdraw a U.S. lawsuit it filed against Darmstadt-based Merck on Tuesday.

The decision came after all three companies held joint talks about Merck's move in the last few days to acquire shares of Schering on the open market.

"We're very pleased about Merck's decision, because a lengthy competitive bidding process would have greatly affected Schering's future," said Bayer Chief Executive Werner Wenning. "All three companies concerned will benefit from this step," he added.

He said he was optimistic that Bayer could now secure at least the three-quarters of Schering's stock it was aiming for and quickly begin the integration process.

As part of the talks Wednesday, Bayer said it and Merck agreed to more discussions about "further possible opportunities for cooperation between the two companies."

Founded in 1863, Bayer invented Aspirin in 1897 and has since gone on to make everything from vitamins to agricultural chemicals. Its best known products include Alka-Seltzer and One-A-Day vitamins. The company employs some 93,700 workers.

Schering, founded in 1851 as a pharmacy, has since grown to a corporation that employs 24,500 people worldwide. Schering's connection to its former U.S. subsidiary, Kenilworth, N.J.-based Schering-Plough, was broken during World War II and the companies are no longer related.

Merck, also founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world. It has been entirely separate from Whitehouse Station, N.J.-based Merck & Co. since the end of World War I.

Hain Celestial buys H.J. Heinz’s Linda McCartney Brand

Hain Celestial Group Inc. and H.J. Heinz Co. are today singing the old Beatles hit "Come Together."

That's because they have. The Melville-based manufacturer of organic foods and grooming products, announced it has finally inked a deal to buy Heinz's Linda McCartney brand frozen vegetarian foods unit.

Terms of the deal were not disclosed.

In a statement before markets opened, Hain said it had agreed to buy the Linda McCartney brand (under license) frozen meat-free business from Heinz, including the manufacturing facility in Fakenham, England.

Irwin D. Simon, Hain's chief executive officer, said in a statement that the company is "excited to have the opportunity to work with the McCartney family in expanding the Linda McCartney frozen meat-free business in the United Kingdom and the rest of Europe as well as throughout North America."

In a statement, representatives of the McCartney family said that "We believe the visions of both our companies fit perfectly with our desire to encourage more and more people to eat pure, vegetarian food. It was this desire that motivated Linda when she started Linda McCartney Foods originally and we hope to continue her good work and in doing so, her legacy."

Linda McCartney, an avid vegetarian who helped popularize the diet in the 1980s through her line of frozen foods, died in 1998 from breast cancer. Her husband, Paul McCartney, is one of two surviving members of the four-member Beatles group.

Hain said in May that it was in "advanced" talks to acquire the Linda McCartney brand.

Hain said that the purchase will probably add to earnings in the company's 2007 fiscal year.

In May, Hain also announced the acquisition of the Fresh Prepared Foods Business in Luton, England, from Heinz.

Heinz once had a six-million share stake in Hain, but has sold its holdings.

Slimming waistlines have meant growing sales for Hain, which said it earned $9.7 million in its most recent quarter, a 27 percent hike from the same period last year. Hain said that sales advanced in the quarter to a record $196.4 million.

Hain has about 1,500 employees.

Bayer or Merck, Who will acquire Schering

Bayer AG said Tuesday that it is considering buying further Schering AG shares on the market, at a per-share price above the $108 (€86) that Bayer offered in its takeover bid.

"Bayer is sticking to its goal of getting a two-thirds majority of Schering," the company said. To that end, Bayer said it had bought a further 530,417 shares on the market by Monday afternoon for $108 each. With that, Bayer holds 23.36% of Schering. A further 36.78% has been tendered to Bayer as part of its takeover offer, which Schering supports.

Bayer came into trouble with its Schering offer as rival Merck KGaA began building up its own Schering stake, which was under 5%, by purchasing shares starting last week. Bayer now controls 60.15% of the Schering capital. Merck holds 20.71%. Bayer had set itself a target of buying 75% of Schering's shares in order to integrate the company by late this year.

In March, Merck published a hostile offer of €77 a Schering share, but was outbid ten days later by Bayer's offer of $108 a Schering share, backed by the Schering management.

Analysts are still puzzled by Merck's aggressive purchase of Schering's shares. Some said the family-dominated company may want to force Bayer to pay it a higher price, or gain a better bargaining position should it want to obtain the rights to Schering products or assets that would have to be sold off to placate antitrust regulators.

Schering said Monday that it believes Bayer's offer is the "most attractive solution for Schering and its employees."

Merck KGaA is independent of Merck & Co. of the U.S. The U.S. company started out as a subsidiary of Germany's Merck but was confiscated by the U.S. government after World War I and made independent. Similarly, Schering's U.S. assets also were confiscated during the two world wars, which eventually led to the creation of Schering-Plough Corp. of the U.S.

Novartis to acquire Britain-based NeuTec for $570 million

Novartis AG said Wednesday it would acquire NeuTec Pharma PLC for $570 million (305 million pounds; euro443 million) in cash, adding two highly promising anti-infection drugs to its portfolio.

The offer, which translates to 1,050 pence a share, represents a 14 percent premium over Tuesday's close, Novartis said. The Swiss-based drugmaker said the deal has been unanimously recommended by the British company's board of directors.

"Our proposed acquisition of NeuTec exemplifies our commitment to innovative medicines for severely ill patients," Novartis Chief Executive and Chairman Daniel Vasella said in a statement.

 

NeuTec, formed in 1997, specializes in developing medicines against hard-to-treat infections acquired in hospitals, known as "superbugs."

It currently has two medicines in clinical development. Mycograb, used with antifungals to treat candida infections, is scheduled for submission to U.S. health authorities in 2009. Aurograb, used with antibacterials to treat staph infections, will be submitted in 2010.

"In clinical trials, Mycograb has been shown to significantly lower the mortality of patients with severe fungal infections," Vasella said. "Both Mycograb and Aurograb promise to dramatically improve the treatment possibilities in this area, and will also enable Novartis to strengthen its biologics pipeline and anti-infective drug portfolio."

Novartis said the deal already has the support of major shareholders representing 39 percent of NeuTec. It said it expects the offer, which is subject to regulatory approval, to close in the second half of this year.

Novartis shares were up 0.1 percent at US$55.30 (66.95 Swiss francs; euro42.95) in Zurich trading. NeuTec shares soared more than 15 percent to US$19.99 (1,069.75 pence; euro15.53) in London.

Pfizer Receives $14 Billion in Bids for Consumer Unit

Pfizer received bids worth more than $14 billion for its consumer products unit, which includes household names like Listerine and Sudafed, people involved in the auction said yesterday.

The offers, these people said, came from some of the company's big rivals like GlaxoSmithKline and Johnson & Johnson, as well as a British household cleaning products maker, Reckitt Benckiser.

Pfizer announced in February that it would try to sell its consumer products unit in an effort to refocus its efforts on its most profitable business line, prescription drugs.

The consumer unit had $3.9 billion in sales last year, a 10 percent increase from 2004, and an operating profit of $670 million, Pfizer said.

The auction set off a scramble among drug makers and consumer products manufacturers, as well as private equity investors seeking Pfizer's assets.

Consumer companies like Procter & Gamble and most private equity firms eventually passed on bidding in the auction because the asking price was too high, but the people involved in the auction said that yesterday's bids still illustrated how much interest there was in big consumer brands.

And while Pfizer is prepared to jettison its consumer business, the likes of Glaxo and Johnson & Johnson still seem to believe that consumer products are an important part of their offerings.

Yesterday's bids are expected to set the stage for a fierce contest over the next several weeks as the field is narrowed before a final round of offers is made and a winner is decided.

The plan to sell the unit is one of several steps that Pfizer is taking to bolster its flagging stock price, including increasing its dividend and trying to streamline its operations.

Analysts have said that spinning off the consumer unit will be another step in pleasing Wall Street, because investors view the division as outside Pfizer's core business of prescription drugs.

The unit accounted for less than 8 percent of Pfizer's $52 billion in sales last year, and about 4 percent of operating profit.

Some of the unit's other prominent products include Rolaids antacid, Benadryl allergy medicine, Rogaine baldness treatment, Zantac antacid, Bengay analgesic and Lubriderm skin lotion.

The unit's nine brands have than $100 million in annual sales, according to Pfizer.

The acquisition will expand Anheuser-Busch's portfolio of products and leverage its sales and distribution channels to reach more consumers. Under the deal, Anheuser-Busch, the maker of Bud and Bud Light, acquires the Rolling Rock brands and recipes. Anheuser-Busch will begin brewing Rolling Rock and Rock Green Light in August. The beverages will continue to be sold in the United Kingdom and Ireland.

"We have an ideal opportunity to grow this historic brand," said August A. Busch IV, president of Anheuser-Busch Inc., in a statement "This beer is not like others, and its consumer following is equally distinctive. We live in a diverse world where consumers are hungry for variety. Acquiring Rolling Rock enables us to reach a new audience and to continue building our broad portfolio of products that meet the wide-ranging needs of consumers."

Introduced in 1939 by Latrobe Brewing Co. and acquired by InBev's Labatt U.S.A. in 1987, Rolling Rock is an historic, American lager well-known for its distinctive painted green bottle.

Norwalk, CT-based InBev plans to sell its brewery in Latrobe, Pa., separately to focus its U.S. business on imported beers. InBev USA is the U.S. subsidiary of Belgian-based InBev.

St. Louis-based Anheuser-Busch also owns a 50% share in Grupo Modelo, Mexico's leading brewer, and a 27% share in Tsingtao, the No. 1 brewer in China

Wyeth is expected to make an offer for Pfizer's over-the-counter business ahead of the next deadline for bids on June 6, according to people familiar with the situation.

It will compete with rivals Johnson & Johnson and Colgate-Palmolive – both thought to be primarily interested in the personal care unit.

By joining the auction for Pfizer's OTC business, Wyeth is pursuing a prize it has previously targeted: in 1999, as American Home Products, it made a $71bn bid for Warner-Lambert, which owned many of the consumer brands for sale today.

"We are always open to evaluating opportunities to augment our existing businesses but we cannot comment on rumours regarding potential acquisitions or business transactions," said Douglas Petkus for Wyeth.

Reckitt Benckiser, the UK-based household and personal care group, is also looking at the business. Last year, Reckitt won the hotly-contested auction for Boots Healthcare International, which makes OTC drugs including Nurofen painkillers and Strepsils lozenges.

Bayer, the German pharmaceuticals and chemicals company that invented Aspirin, is also expected to submit a final offer. It recently paid $20bn for rival German drugs company Schering.

GlaxoSmithKline, which was an underbidder for BHI, will also table a bid, while Swiss rival Novartis is thought to have dropped out of the auction.

In spite of the intense competition for the OTC division, Pfizer might still decide to spin off the unit to shareholders. A key obstacle to a sale would be the large tax bill, which some bankers estimate at about $3.5bn.

"The initial level of interest has been high and we anticipate a decision in the third quarter on which of the two strategic options we will pursue," said Paul Fitzhenry, for Pfizer.

A sale to Wyeth could raise questions about its strategy. Consumer healthcare products – worth $109bn globally, according to Sanford Bernstein – are more stable businesses than prescription drugs, but offer less growth.

Observers might question why Wyeth is not following the lead of some peers and buyingbiotech groups. One banker not involved in the auction said Pfizer's OTC arm would be a "big bite" for Wyeth. Wyeth could team up with Colgate or J&J to split the unit, he said.

AstraZeneca Is in Talks to Acquire Biotechnology Firm

AstraZeneca  is negotiating to buy Cambridge Antibody Technology, in another sign that traditional pharmaceutical companies are moving further into biotechnology.

The two British companies acknowledged yesterday that they were in talks after The Sunday Times in London reported the possibility of the deal. A transaction would value Cambridge Antibody at more than £600 million, or $1.1 billion, the newspaper said. One person briefed on the deal said an announcement was expected this morning.

The talks come a few days after Merck agreed to pay a combined $480 million to buy two privately held American biotechnology companies, GlycoFi of Lebanon, N.H., and Abmaxis of Santa Clara, Calif.

For both AstraZeneca and Merck, the payoff from the acquisitions would be mainly technology for making biotechnology drugs, not any particular drug under development by the smaller companies.

The talks illustrate how the big pharmaceutical companies and the biotechnology industry are increasingly overlapping in the drugs they develop. The pharmaceutical companies have typically developed drugs made of chemicals that can be taken orally. Biotech companies have developed drugs made of proteins, sometimes called biologics, which are produced in living cells and must be injected.

But the pharmaceutical companies are now moving more forcefully into biologics while some traditional biotech companies like Amgen and Genentech are developing chemical drugs because of their convenience.

Biotech drugs are attractive for the big drug companies because they are becoming more important in treating illnesses like cancer and autoimmune diseases. And for both scientific and regulatory reasons, biologic drugs are fairly immune to the competition from generics that can quickly destroy the profits from a chemical drug.

Some traditional drug companies like Johnson & Johnson, Wyeth and Eli Lilly already have significant sales of biologic drugs, some of them licensed from biotech companies. But neither AstraZeneca nor Merck currently sells such a drug.

Cambridge Antibody has fundamental technology for making monoclonal antibodies, which are versions of the proteins that the body produces to fight germs. Biotech companies can customize antibodies to attack not only germs but also tumors or other disease-causing proteins.

Cambridge Antibody's technology makes antibodies that are essentially identical to human ones, reducing the chances of an immune system attack that can occur with antibodies derived from mice.

The technology was used to develop Humira, a rheumatoid artritis drug sold by Abbott Laboratoriesthat had sales of $1.4 billion last year. But Cambridge gets a 2.7 percent royalty, which has not been enough to make it profitable. Other companies, including Human Genome Sciences, are testing antibody drugs made using Cambridge Antibody's technology, and Cambridge itself has an asthma drug in early trials.

AstraZeneca, based in London, already owns just under 20 percent of Cambridge Antibody from a deal the companies made in 2004 to work together to develop drugs. AstraZeneca's decision to buy all of the smaller company could reflect its satisfaction with the relationship so far.

But another spur could have come from Amgen's recent $2.2 billion acquisition of Abgenix, another company with fundamental technology for making humanlike antibodies. While Amgen mainly wanted full rights to a particular drug, that deal heightened speculation that other antibody companies — like Cambridge Antibody and Medarex— might be acquired.

In addition, AstraZeneca was working with Abgenix to develop cancer drugs. It is conceivable that that relationship might be endangered now that Amgen controls Abgenix, making AstraZeneca place an even higher value on its relationship with Cambridge Antibody.

David R. Brennan, who took over as chief executive of AstraZeneca in January, has done a flurry of drug licensing deals and acquisitions of biotech companies in recent months to bolster his company's drug pipeline, which has suffered some setbacks.

Citing side effects, the company earlier this month discontinued development of Galida, a  diabetes drug that had been in the final stages of clinical trials. The Food and Drug Administration restricted access to its lung cancer drug Iressa last year after the drug failed to prolong survival in clinical trials.

AstraZeneca is also facing challenges to the patents protecting some of its best-selling products, including Toprol-XL for hypertension, Nexium for ulcers and Seroquel for schizophrenia.