Japan drug merger signals shake-up
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Shares in Yamanouchi and Fujisawa are higher Wednesday on their merger announcement.
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TOKYO, Japan (Reuters) -- Yamanouchi Pharmaceutical is to buy rival Fujisawa Pharmaceutical in a deal worth $7.76 billion.
It will create Japan's No.2 drug maker, signalling a shake-up in the nation's $50 billion drug market.
Analysts say the deal, the biggest between non-financial firms in Japan in nearly three years, makes sense, giving the firms greater worldwide reach and boosting their research and development clout in a fiercely competitive industry.
"Each company has been enjoying steady profit growth alone, but we concluded that the merger would be the best solution for both firms to survive and grow further as a global player," Yamanouchi President Toichi Takenaka told a news conference Tuesday.
Yamanouchi is paying a 2.2 percent premium for Fujisawa, based on current share prices.
Yamanouchi shares are 3.9 percent higher to 3730 yen at midday Wednesday. Fujisawa shares are up 4.2 percent to 2600 yen.
"There is very little overlap in their product lines and now they have a good foundation for global growth, as Yamanouchi is strong in Europe and Fujisawa is strong in the United States," said Yasuhiro Nakazawa, senior analyst at Mitsubishi Securities.
Yamanouchi is strong in ulcer and urinary treatments and is best-known for Harnal, a medicine for urinary problems, while Fujisawa, maker of the immuno-suppressant drug Prograf, focuses on immune-related treatments. Their earnings have been propelled by strong global sales of high-margin drugs.
Yamanouchi, the surviving entity, will be the second-largest drug maker in Japan after Takeda Chemical Industries with annual sales of some 920 billion yen ($8.5 billion).
It will also hold the largest share in the prescription drug market in Japan -- the world's second-biggest after the United States -- and will have the nation's second-largest sales force of 2,400 after Pfizer Inc's 3,200.
Yet in the global ranking it will be only No.17.
"The move is a forward-looking action to become a winner in the global market. We may still not be big enough to become a global mega player, but this is the first step to become one," Fujisawa President Hatsuo Aoki said.
The two companies aim to boost prescription drug sales from 800 billion yen now to over one trillion yen in the year ending in March 2008, with an operating profit margin of 25 percent.
"Our ultimate goal is to enter the top 10 ranking in the global pharmaceutical market...through organic growth or forming another partnership," Aoki said.
The deal is due to be completed in April 2005. Yamanouchi's Takenaka will become chief executive of the new firm while Aoki becomes chairman.
A Yamanouchi spokesman said the existing licensing deals with foreign drug firms would remain unchanged.
Yamanouchi will issue 234 million new shares, swapping 0.71 of its shares for each Fujisawa share. The deal's total value is 840 billion yen ($7.76 billion) at Tuesday's closing prices.
The deal is Japan's biggest since the $11.9 billion merger deal between NKK Corp and Kawasaki Steel Corp, which created JFE Holdings Inc in September 2002, according to Thomson Financial.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
