Los Angeles billionaire Patrick Soon-Shiong has agreed to sell his Illinois-based generic drug business for $3.7 billion, plus the assumption of $940 million in outstanding debt.
The deal, one of the largest in the health care sector this year, eventually could be worth up to $4.6 billion if certain milestones are met.
The buyer is Fresenius SE of Frankfurt, Germany. It makes products for dialysis, hospital and outpatient medical care. It hopes to use APP Pharmaceuticals, Inc., which makes injectable drugs for cancer, infections, anesthesia, pain and critical-care, to extend its global reach, the companies said late Sunday night. APP products currently are sold in the United States and Canada.
Schaumburg, Ill.-based APP is publicly held, but Soon-Shiong, its founder and chairman, controls more than 80 percent of outstanding stock and has given his consent to the deal. He had only recently given up the chief executive job to focus on his Los Angeles-based proprietary drug company, Abraxis Inc., which makes the cancer drug Abraxane. He also controls 80 percent of Abraxis through direct and indirect holdings.
Soon-Shiong, a former UCLA researcher, and other APP shareholders will receive $23 a share in cash, a 29 percent premium on the stock’s July 3 closing price. They could get an additional $6 a share in the second quarter of 2011 if APP beats a core profit target, raising the ultimate value of the deal to $4.6 billion.
The Business Journal in May estimated Soon-Shiong’s net worth at $3.8 billion on its annual Wealthiest Angelenos list, with the value of his APP stake calculated at $1.7 billion based on a $13.07 stock price at the time. The Fresenius deal raises value of that holding alone to more than $3 billion, or $3.8 billion if the milestones are met.
Soon-Shiong founded APP predecessor American Pharmaceutical Partners Inc. in 1996, two years after Abraxis predecessor American Bioscience Inc. was formed. Though it throws off more cash, APP shares had only started rising in mid-May from the low teens to its $17.82 close on Thursday. When APP was spun off from Abraxis in November after a roughly one year, the market was displeased that APP held onto debt that largely benefited its smaller biotech sibling.
The APP sale has been approved by its directors but still needs U.S. anti-trust approval. APP had 2007 sales of $647 million and adjusted earnings of $253 million. It most recently forecast 2008 sales of $730 million to $750 million and adjusted EBITDA of $285 million to $300 million. During the recent scare involving tainted Heparin from China, APP benefited from being the only alternative U.S. provider of the generic form of a blood thinning drug.
Fresenius shares earlier fell 10 percent in Monday trading on the German DAX as investors expressed concern over the price and the debt financing to be used. Fresenius is paying about 5.6 times APP’s 12-month sales, which according to Bloomberg News is the highest multiple paid in recent years for a generic business. Generic-drugs have become a popular way for health care providers to reduce costs, particularly as more brand name drugs go off patent.
In a July 2 regulatory filing, APP said its board’s compensation committee on June 27 had approved raising Chief Executive Thomas Silberg’s 2008 base salary 50 percent to $600,000 and revised his change-of-control retention and severance agreements.
Shares of APP moved the most since its December 2001 initial public offering, gaining 30 percent to close at $23.19 on Monday.
