Replies to post #8347 on The Rising Influence of Rising Affluence

[DewDiligence]

ABT boosts branded-generics business in Latin America with acquisition of CFR Pharmaceuticals for $3.3B (including assumption of debt):

http://finance.yahoo.com/news/abbott-expands-latin-american-presence-113000597.html

Abbott today announced a definitive agreement to acquire Latin American pharmaceutical company CFR Pharmaceuticals, more than doubling its Latin American branded generics pharmaceutical presence and further expanding Abbott's presence in fast-growing markets.

…Abbott expects the acquisition to add approximately $900 million to its sales in the first full year (2015), with expected double-digit sales growth over the next several years.

…the total purchase price would be approximately $2.9 billion, plus the assumption of net debt of approximately $430 million… [i.e. $3.3B all told].

…CFR Pharmaceuticals, headquartered in Santiago, Chile, participates in 15 Latin American markets and has a comprehensive product portfolio that is well aligned with Abbott's current pharmaceutical therapeutic areas of focus in women's health, central nervous system, and cardiovascular and respiratory diseases. …CFR currently markets more than 1,000 products and has a robust pipeline [of branded generics].

…the acquisition adds approximately 7,000 employees, and R&D and manufacturing facilities in Chile, Colombia, Peru and Argentina. [CFR’s sales breakdown by country is: Colombia 30%, Chile 21%, Peru 16%, and others 33%.]

The Latin American pharmaceutical market is expected to reach $73 billion in sales this year, and is expected to reach $124 billion by 2018, with estimated annual growth rates of two to three times that of developed markets over the coming years, according to IMS forecasts.

Recently, there have been some murmurs that ABT was looking to sell its branded-generics business, but I think it’s safe to say that this $3.3B deal (including debt assumption) verifies that ABT is in this business to stay.

Although ABT’s branded-generics business has been highly profitable, it has not grown since the ABT-ABBV separation in Jan 2013 because the high growth in emerging markets has been offset by sales declines in Europe and other “developed” countries. (Zero sales in this business segment comes from the US—see #msg-100847322.) With the acquisition of CFR, the balance will tip considerably more toward emerging markets and will result in higher growth for this business segment without sacrificing profitability.

Since the CFR deal is not expected to close until late in 2014, ABT hasn’t altered its 2014 non-GAAP EPS guidance of $2.16-2.26 (#msg-100710221). The deal is expected to be accretive to non-GAAP EPS In 2015 and thereafter.

ABT’s shares declined 0.5% today, so investors are not exactly going gaga over this deal. One reason may be the high (~50%) premium ABT paid relative to the market price of CFR, which trades on the stock exchange in Santiago, Chile. Despite the lukewarm reception by investors today, I’m bullish on branded generics in emerging markets and I think this deal will prove to be a good one for ABT.