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Germany's Merck sells generics unit to Mylan

German drug maker Merck KGaA announced Sunday that it is selling its generic drug business to Mylan Laboratories Inc. of the U.S. for $6.6 billion.
/ Source: The Associated Press

German drug maker Merck KGaA announced Sunday that it is selling its generic drug business to Mylan Laboratories Inc. of the U.S. for $6.6 billion).

The deal frees Darmstadt-based Merck to concentrate on its core pharmaceutical and chemical activities, while allowing Mylan, a generic drug maker based in Canonsburg, Pennsylvania, to expand its product range and global reach.

Merck said that the two companies "signed a share purchase agreement whereby Mylan will acquire all Merck Generics companies throughout the world" and it expects the transaction — which requires regulatory approval — to close in the second half of 2007.

Merck said the unit had sales of 1.8 billion euros and an operating profit of 307 million euros last year.

The sale "will allow Merck to focus its resources on further growth within its pharmaceuticals and chemicals business sectors," the German company's CEO, Karl-Ludwig Kley, said in a statement.

Merck's generic drug division has nearly 5,000 employees, and Kley said its acquisition by Mylan "offers great opportunities for long-term growth and a bright future for the employees" of the unit.

"The fit between our two companies is truly outstanding," said Robert J. Coury, Mylan's vice chairman and CEO. He said the Merck unit "provides us with leading positions in many of the world's other key regions" to add to Mylan's strong position in the U.S. market.

The deal follows Mylan's recent acquisition of 71 percent of India-based drug ingredient maker Matrix Laboratories for a little over $700 million.

Mylan said it expects to achieve savings of some $250 million within three years, but "does not anticipate significant reductions in head count at Mylan, Matrix or Merck Generics" in order to achieve them.

Merck Generics' senior management, including CEO Hank Klakurka, is to remain in place.

Merck said earlier this year that it was amenable to a sale of the generics division. India's Ranbaxy Laboratories Ltd. and Iceland's Actavis Group HF publicly expressed interest.

"Mass markets were never the objective of Merck," former Merck CEO Michael Roemer said last month as he handed over to Kley. He said that selling the generics division was the "right step into the future."

Roemer noted that strong growth and competition in the generic drugs sector adds to pressure on producers, saying that "there will be less and less, but bigger, suppliers in this market." Merck, he said, saw its future more as a provider of innovative products.

Merck last year chased rival German drug maker Schering, but was outbid by Bayer AG. It then bought Swiss biotech company Serono SA for $14.3 billion in a deal aimed at expanding its range of drugs and its share of the global biotechnology market.

Selling its generics unit would help lower the company's debt following that acquisition. Merck said the unit accounted for 29 percent of its total sales and 28 percent of its operating profit in 2006.

Merck, founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world. It has been entirely separate from New Jersey-based Merck & Co. since the end of World War I and employs some 29,000 people.