Mega deal creates largest pharma player in CEE

The massive deal would create the leading pharmaceutical company in CEE with a pro forma market capitalisation of around $5.4bn. Richter intends to settle the transaction in shares, through the agreement with Polpharma owner Genefar, who will also own a 25 per cent stake in the company. Both companies have particular expertise in generics, with Polpharma a leader in its native Poland in both generics and over-the-counter (OTC) products. With Poland representing the largest pharmaceutical market in CEE (with around a 40 per cent share), the deal is particularly attractive for Richter as it looks to bolster its market position. Central and Eastern European markets are currently the most significant regions for Polpharma, providing the greatest opportunity for sales growth. Around 13 per cent of the company's turnover comes from international operations, 65 per cent from drug sales and a further 35 per cent generated by active pharmaceutical ingredients (APIs). Russia is a key country for the Polish firm, generating approximately 60 per cent of the company's international drug sales. The majority of Polpharma's APIs are exported to North America and the EU. While Richter has estimated annual revenue and cost synergies of around $35m, further analysis will be carried out following completion of the deal, expected during Q1 2008. Should the transaction not complete, the two parties have agreed a figure with which to compensate the losing firm. Should Richter shareholders not approve the deal, or Genefar fail to complete the transaction, the respective company will have to pay out $40m to the other party. Richter simultaneously announced another deal yesterday, with plans to acquire Russian pharmaceutical firm Akrihin Part owned by Genefar, Richter plans to buy up just over 80 per cent of the firm in another stock deal worth around $128m. Despite Richter's position as one of the largest pharmas in CEE with manufacturing sites in Hungary, Russia, Romania, Poland, India and Germany, third quarter financial results revealed that the group's domestic market was contributing to a slightly unfavourable balance sheet. Operating profit was down over 20 per cent over the first nine months of the year (in Hungarian Forint, or 8.9 per cent in US dollars), to HUF28.5bn ($153m). Richter's pharmaceutical manufacturing and sale unit was the only profitable part of the business, with the pharmaceutical wholesale and retail unit recording a loss. Pre-tax profit also showed a hefty decline, dropping over 30 per cent compared to last year to HUF28.8bn ($154.5m). Presumably the company will be viewing these latest acquisitive deals as a way to dampen the effects of the unfavourable Hungarian market and take advantage of markets such as Russia, Ukraine and the US, where the firm sees more opportunities for growth.