PE-Backed Actavis On The Auction Block

LONDON (Reuters) – Iceland’s Actavis, one of the world’s top makers of generic drugs, is to be offered for sale by its private-equity owners in an auction that could raise $6 billion or more, three people familiar with the situation said.

Merrill Lynch, which was hired by the Icelandic group last year to review its strategic options, is to kick off the formal auction process shortly and a deal could be clinched within three to five months, the sources told Reuters.

“We are now much closer to a sale process … quite possibly in the coming weeks,” said one source, noting that Actavis had just solved a problem at a U.S. factory that removed a key hurdle to a sale.

Actavis spokeswoman Hjordis Arnadottir declined to comment on the auction but said the company had been reviewing its options — including merging with another firm, acquiring a rival or selling the business — for several months.

The sale is expected to attract interest from generics firms as well as big drugmakers such as Pfizer (PFE.N), Sanofi-Aventis (SASY.PA), Novartis (NOVN.VX) and GlaxoSmithKline (GSK.L), which see generics as a springboard into emerging markets — Actavis has a strong presence in eastern Europe and parts of Asia.

More than one Middle-Eastern and South-Asian sovereign wealth fund with existing generic drug assets has also confirmed interest.

RECENT DELISTING

The planned sale comes just 18 months after Novator, the investment vehicle of Icelandic billionaire and Actavis chairman Thor Bjorgolfsson, took the previously listed company private.

Bjorgolfsson lost money following last October’s collapse of Iceland’s Landsbanki bank, in which he was a major shareholder.

The 2007 buyout left Actavis with 4 billion euros ($5.4 billion) of debt, underwritten by Deutsche Bank (DBKGn.DE).

“The big question is how much equity value there is in the company over and above the price needed to cover the debt?” a second source said.

Actavis hopes to get 10 to 15 times earnings before interest, tax, depreciation and amortisation (EBITDA), reflecting competition for assets in a consolidating generic drugs sector and the fact drug firms are still flush with cash.

Its EBITDA was around 400 million euros last year.

But some banking industry sources believe that kind of valuation ratio is ambitious. “The sellers would like it to go for 6 billion euros — that looks unlikely in the current environment,” one said.

Actavis will be the second generic drug manufacturer to go on the block in Europe this year, with Germany’s Ratiopharm also up for sale as part of a loan deal with the family of German tycoon Adolf Merckle, who committed suicide earlier this week.

Israel’s Teva (TEVA.O) is seen by many as the front runner to buy Ratiopharm [ID:nL6728220].

Actavis has 11,000 employees operating in 40 countries, including Europe, North America and Asia, and generates 99 percent of its revenues outside Iceland.

Last October, it said it expected a turnover of about 1.7 billion euros in 2008.

By Ben Hirschler and Douwe Miedema