Deal maker

Zurich, Oct. 31 (Reuters): Novartis, the world’s fourth-biggest drug maker by market value, has agreed to buy the remainder of US vaccine maker Chiron Corp that it does not already own for $5.1 billion. The sum is about $600 million more than an original bid by Novartis that was rejected as inadequate.

The Swiss company, which already owns 42 per cent of Chiron, raised its cash bid on Monday for the remaining 58 per cent to $45 a share, $5 a share more than its original bid in September. Novartis originally bid $4.5 billion for the US firm, which had sales of $1.7 billion in 2004 and pro forma net profit of $152 million.

Plagued by production problems, which affected its ability to deliver flu vaccines to the US market last year, Chiron has been struggling to increase sales and profits this year. It said last week it would not reach its full-year earnings forecasts.

Novartis’s sweetened bid raises the valuation of California-based Chiron by around $1 billion to $8.8 billion, a multiple of around 4.2 times the estimated 2006 sales, according to one analyst.

Novartis’s proposal was unanimously approved by Chiron’s independent directors, who had rejected the earlier bid as inadequate. The revised offer represents a premium of 23 per cent to Chiron’s share price before the first merger proposal was made.

Chiron shares gained around 2.5 per cent to $44.47 on the Inet electronic brokerage system. Shares in Novartis were up 0.9 percent at 68.45 Swiss francs.

Analysts said the valuation of Chiron was exactly in line with the sector average.

“It goes from being an attractive price (for Novartis) to being fair value,” Denise Anderson of Kepler Equities said.

Lombard Odier Darier Hentsch analyst Karl-Heinz Koch said he still thought the deal was relatively good for Novartis, but added: “You can argue about the strategic fit as Chiron has a number of challenges which have to be addressed.” However, he said Novartis had shown its willingness to invest in Chiron to build up the pipeline of development projects.

Turnaround plan

Novartis intends to turn around Chiron, the world’s fifth-largest maker of vaccines, which has been plagued by production problems at a plant in Britain, hampering its ability to supply flu jabs to the United States.

“Our plan is to turn around the Chiron vaccines business, which will require investments in research and development and manufacturing to increase quality and capacity,” Novartis chairman and chief executive Daniel Vasella said in a statement.