Biotech Values

[DewDiligence]

FTC to Block CSL-Talecris Deal

[This article needs clarification on several counts. First, the article switches back and forth between talking about US sales and worldwide sales of plasma proteins; the former is a $6M/yr market while the latter is $15B/yr. Second, the article switches back and forth between US dollars and Australian dollars, which are worth about 20% less at current exchange rates. Third, the article does not make it clear that protein drugs derived from plasma are only a fraction of the market for plasma proteins because the market includes such drugs as BAX’s Advate, which is manufactured recombinantly.

In the US plasma-protein market, CSL and Talecris combined would have attained roughly a 40% share, about the same as BAX’s, and the FTC evidently thinks an 80% share in the hands of two companies is an excessive concentration. Worldwide, the plasma-protein market is much more fragmented: BAX and CSL combined (even with Talecris added) have less than a 50% share.

BAX recently told investors that pricing for plasma proteins has been firm, and hence they did not see a potential pricing benefit from the elimination of the #3 player in the US market (Talecris). A corollary is that the Talecris deal’s being nixed by the FTC should not be materially negative for pricing and profitability in this business segment.]

http://online.wsj.com/article/SB124323949988451123.html

›MAY 26, 2009
By Andrew Harrison

MELBOURNE -- CSL Ltd., the world's second-largest plasma products maker, said the U.S. Federal Trade Commission is likely to block its US$3.1 billion takeover of U.S. rival Talecris Biotherapeutics Inc.

CSL Managing Director Brian McNamee met with officials Friday to argue for the transaction and present potential remedies to address antitrust concerns, the Australia-based company said.

CSL said it was informed during the meeting that FTC staff have recommended its commissioners start legal action to block the deal. The commissioners are likely to vote on the proposed acquisition by Thursday.

A CSL spokeswoman said if the deal isn't forthcoming it would reconsider returning surplus funds to investors.

The blood products company raised 1.75 billion Australian dollars (US$1.36 billion) in October, selling new stock at A$36.75 each, to help fund the Talecris transaction.

The spokeswoman said that if the FTC opposes the deal, CSL would need to challenge the decision in the courts if it were to pursue the matter further.

CSL proposed in August to buy North Carolina-based Talecris to boost its share of the US$15 billion-a-year global plasma therapeutics market. At the time, CSL said garnering the requirement approvals from U.S. regulators would likely take a year.

Talecris is the third-largest producer of plasma medicines in the U.S., behind CSL and market leader Baxter International Inc. The three companies control 83% of the U.S. market.

CSL had said that with Talecris, its annual sales of plasma products would rise to about A$3.8 billion, compared with Baxter's yearly revenue of about A$5 billion. Talecris is highly complementary to CSL's business and would give it economic scale, broaden its range of plasma products and boost its geographic presence.

CSL said in August that the purchase would add 10% to earnings per share in its first year of acquisition and deliver synergies worth about US$220 million over three years.

Dan Hurren, a health-care analyst at UBS in Sydney, said the deal is less likely as "the commission is unlikely to recommend against its legal advice."

If CSL fails to secure approval to complete the deal, the company will be liable to pay a US$75 million break fee to Talecris's private equity owners, Cerberus Partners and Tribeca Investment Partners [ouch], the company spokeswoman said.

CSL shares fell 1.8% to A$30.35 Monday in Sydney, partly recovering from an early low of A$29.94. The benchmark index dropped 0.6%.‹