AstraZeneca wrings out value with spin-off plan
reuters
On Tuesday November 16, 2010, 9:19 am EST
By Ben Hirschler
LONDON (Reuters) - AstraZeneca is stepping up a drive to wring value out of the business with plans to sell its Astra Tech dental implants and medical devices unit for some $2 billion.
Industry analysts said the move demonstrated management's focus on boosting returns as the group heads into a wave of patent expires on some of its biggest-selling medicines.
The sale, equivalent to around 3.4 times last year's sales, would free up cash that could be put to use for increased share buybacks or small-scale acquisitions in the core pharmaceuticals operation.
"It shows there are hidden pockets of value in the business," says Panmure Gordon analyst Savvas Neophytou, who was already expecting AstraZeneca to increase share buybacks in 2011 while it is still generating plenty of cash.
AstraZeneca has hired JP Morgan Chase to help sell the Swedish unit, according to a source familiar with the situation. The London-based drugmaker declined to comment.
Astra Tech, best known for dental implants, also sells catheters, breathing aids and blood management systems used in surgery. It employs around 2,200 staff and had sales last year of 3.9 billion Swedish crowns ($588 million).
The business is not core to AstraZeneca's operations and the company has considered a sale in the past. Analysts said the climate for a disposal now looked favorable, with deal activity picking up in the medical devices sector on the back of ample funding.
AstraZeneca is also looking to unload a U.S. chain of outpatient cancer centers called Aptium Oncology, which would likely sell for less than $500 million, the source said.
Shares in the drugmaker rose 1.1 percent by 1220 GMT, outperforming a 0.3 percent decline in the European drugs sector , as investors welcomed the divestment plans.
BUYBACK HOPES
Navid Malik, an analyst at Matrix Corporate Capital, said AstraZeneca could use extra cash in the bank to boost 2011 share buybacks from this year's planned level of $2 billion and possibly pay a higher dividend.
But he also thinks it will be looking out for businesses to buy to shore up future sales, given the looming loss of patent protection on drugs like Nexium for heartburn and Seroquel for schizophrenia.
"If I was AstraZeneca I would deploy that cash not just in buybacks but also in bolt-on acquisitions because they still need to sort out their revenue line," Malik said.
Chief Executive David Brennan told the Reuters Health Summit last week he was looking for mainly small-scale acquisitions, with the aim of bringing in assets that could benefit from AstraZeneca's global marketing reach.
At the same time, AstraZeneca is continuing a drive to reduce costs and take out capacity. With net cash of some $1.5 billion on the balance sheet, AstraZeneca will review its buyback program in early 2011, he said.
POTENTIAL BUYERS
The Astra Tech dental business could be of interest to U.S. companies such as privately held Biomet, Medtronic, 3M, Danaher
and Dentsply International, as well as private equity firms, analysts said.
In Europe, it is also likely to be looked at by Swiss dental implant firms Nobel Biocare and Straumann.
"All the big dental guys are bound to look at it," said Evolution Securities analyst Chris Donnellan. "But Astra Tech is not just pure dentals, so this makes it a trickier proposition for a pure-play dental company."
Nobel Biocare and Straumann could also run into competition issues since they already have global market shares of 25 percent and 21 percent respectively, according to Morgan Stanley analyst Michael Jungling. Adding Astra Tech's 9 percent share would take them to 30 percent or above.
(Additional reporting by Katie Reid in Zurich and Jessica Hall in Philadelphia; Editing by David Cowell)
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