Biotech Values

[DewDiligence]

Lonza Buys Cambrex Units for $460M Cash

[Cambrex does the downstream processing for GTCB’s ATryn. The business unit that does this appears to not be part of the sale to Lonza.]

http://online.wsj.com

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By Goran Mijuk
10-24-06 0412ET

ZURICH (Dow Jones)--Lonza Group AG (LONN.VX) Tuesday said it has reached an agreement with Cambrex Corp (CBM) to buy two biopharmaceutical units of the U.S. company for $460 million in cash, speeding up the Swiss firm's transformation into a fully-fledged life sciences company.

Lonza said the takeover, which will boost earnings and sales, will be financed through a combination of existing cash, proceeds from the planned initial public offering of Lonza's Italian unit Polynt SPA and a new credit facility set up by Credit Suisse Group (CS) and Citigroup Inc (C).

The facility will provide Lonza with the possibility to tap between CHF400 million to CHF700 million, depending on the size of the IPO proceeds, which could reach up to CHF200 million, according to analysts. Lonza's cash position stands at about CHF300 million.

Lonza shares sharply outperformed the weaker Swiss stock market on the news. At 0740 GMT, they were up CHF4.55, or CHF5%, at CHF94.85, having risen 12.3% so far this year.

"These acquisitions and the IPO of Polynt accelerate the delivery of Lonza's strategic shift towards life sciences that we mapped out two years ago", Stefan Borgas, Chief Executive of Lonza, said in a statement.

The Basel-based company said it will acquire Cambrex's Research Bioproducts business and its unprofitable Microbial Biopharmaceutical business, boosting overall sales by around CHF243 million, or $192 million.

In 2005, Lonza had revenue of CHF2.52 billion, of which 60% stemmed from life science operations and the remaining part from its chemical business, which will now be partly divested trough the IPO of Polynt.

Combined with the divestment of its chemical unit, the takeover will increase the share of Lonza's life sciences revenue to 90% of total turnover.

Polynt is expected to be listed soon at the Italian bourse, with Lonza retaining a 20% to 40% stake in the firm. The company wants to sell the remaining holding in the next two to three years and eyes further acquisitions in the life sciences sector.

Lonza's life sciences operations comprise a biopharmaceuticals division, which specializes in the development of therapeutic proteins, and a synthesis unit that manufactures chemical ingredients for the pharmaceutical industry.

With the takeover, Lonza will also boost its research facilities and services operations in this fast-growing sector that caters to the world's key drug manufacturers such as U.S.-based Genentech Inc (DNA) or Switzerland-based Novartis AG (NVS).

The takeover "extends our technology and value chain activities and gives us access to new high-growth complementary customer and product segments in the life sciences market", CEO Borgas said.

As a result of the transactions, which should become earnings accretive by 2008, Lonza expects its operating margin to rise to mid-to-high teens over the next few years, up from a low-teens growth in the past.

Also, the company expects sales will rise 8% to 12% annually thanks to the takeover. In the past, Lonza targeted annual sales increases of 7% to 10%.

"The transaction certainly make sense from a financial and an operational point of view, especially since Lonza can now much earlier bind costumers trough its research facility", said Martin Voegtli, analyst at Bank Vontobel, who has a sector outperform rating on the stock.

"Although Cambrex's biopharmaceutical is running at a loss, it is certain that it will turn around within the Lonza group", he said.

Separately, East Rutherford, New Jersey-based Cambrex said it expects net proceeds, after paying taxes and transaction- related costs, of around $450 million which will be used to repay all outstanding debt under the company's existing credit facility and to help fund a special dividend to stockholders.
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