Hoffman-La Roche to Offer $4 Billion for Sterling Drug
F. Hoffman-La Roche & Co., a major Switzerland-based international drug firm, said Monday that it will launch this morning a $4.2-billion tender offer for Sterling Drug Inc. in what would be the largest takeover ever of a U.S. drug company.
If completed, the offer of $72 a share in cash--about a 27% premium over Sterling’s recent stock price--would place the combined firm among the world’s top five pharmaceutical firms, with total worldwide sales of about $8 billion, including non-drug revenue, analysts said.
It also could signal a wave of takeovers for U.S. drug companies, particularly from foreign firms that view American drug firms as cheap because of the October stock market crash and the falling dollar, analysts added.
The offer met no immediate public response from Sterling officials. Sterling Chairman John M. Pietruski refused to meet with Hoffman-La Roche Chairman Fritz Gerber to discuss the bid, according to a letter from Gerber to Pietruski that was released to the press as part of the announcement of the bid.
However, Gerber implied that Hoffman-La Roche would go through with the offer whether hostile or friendly. The offer “is not contingent on financing, due diligence or further review” of Sterling’s business, Gerber said in the letter.
“We intend to go forward with a tender offer--we hope it can become friendly,” said Fredric Spar, a Hoffman-La Roche spokesman, adding that financing was available from internal cash or bank lines.
The deal would significantly boost Hoffman-La Roche’s market share and consumer presence in the lucrative U.S. drug market, analysts said. The closely held Hoffman-La Roche, which makes a wide range of drugs including Valium and other health-care products, in recent years has seen its worldwide market share dwindle.
On the other hand, New York-based Sterling has the potential to become one of the fastest-growing U.S. pharmaceutical firms while expanding its international presence. It also produces such well-known consumer brand names as Bayer aspirin, Phillips Milk of Magnesia, Mop & Glo and Lysol.
“They (Hoffman-La Roche) clearly are interested in buying Sterling’s consumer business,” said Craig P. Baskin, drug analyst for Duff & Phelps, a Chicago securities firm.
The product lines of the two firms “are highly complementary and offer significant opportunities,” Hoffman-La Roche Chairman Berger said in the letter.
The deal could become the first hostile takeover in the U.S. drug industry and could trigger a wave of other hostile takeovers, said Samuel D. Isaly, head of worldwide drug industry investment research at S. G. Warburg & Co. in New York. Sterling in particular has been viewed as a prime takeover target because of its affordability and its strong consumer franchise.
“This is just the beginning,” Isaly said. “We don’t think the price ends at $72,” he added, noting that other firms may make competing bids for Sterling or that Sterling may force Hoffman-La Roche to raise its bid. To avert a takeover, Sterling could restructure or sell off pieces of its business, Isaly said.
The deal, if completed, would top Monsanto’s $2.8-billion takeover in 1985 of G. D. Searle & Co., currently the largest takeover of a U.S. drug firm, Isaly said.
In the letter announcing the offer, Hoffman-La Roche Chairman Gerber said Sterling “would continue to operate as it has in the recent past” and that current management would be retained.
“We are prepared to commence negotiation of agreements to effect the combination of our two companies immediately, including appropriate agreements to assure continuity of management,” Gerber said in the letter. He added that “although I understand you (Sterling’s Pietruski) initially chose to not meet, I nevertheless remain eager to do so.”
Sterling stock closed Monday on the New York Stock Exchange at $56.875 a share, up $1.75. Announcement of the offer was made after the close of trading.
Separately Monday, Costa Mesa-based ICN Pharmaceuticals said it raised its stake in Hoffmann-La Roche to 7.3% from 6.3%.
