PE-backed Nycomed falls short in pharma bid

Pharmaceutical company Nycomed came up short in the bidding war for Solvay SA’s drug unit in what would have been the largest private equity-backed deal this year.

Nevertheless, its offer revealed a willingness among banks to provide financing for the right target. The bidding war also put on display the power that strategic buyers wield over buyout firms in the current deal market.

Columbus, Ohio-based Abbott Laboratories announced Sept. 28 that it would buy Belgian-based Solvay’s drug unit for $6.6 billion, out-bidding Nycomed, which reportedly offered somewhere between $5.9 billion and $6.6 billion.

Reuters reported on Sept. 25 that Nycomed’s backers were weighing the possibility of sweetening their offer, but it was unclear whether they did so. The company’s private equity owners include Avista Capital Partners, DLJ Merchant Banking Partners and Nordic Capital.

Had Nycomed succeeded, it would have marked the largest buyout of the year. The largest to date is Kohlberg Kravis Roberts & Co.’s $1.8 billion acquisition of Oriental Brewery from Anheuser-Busch InBev. The Solvay acquisition also would have been the first buyout to be financed significantly by junk bonds since the debt market all but closed following the collapse of Lehman Brothers in September 2008.

Nycomed had planned to buy Solvay’s drug unit with $1 billion of fresh equity from its investors and about $3.7 billion in high-yield bonds, according to Reuters. The company had also lined up bridge loans ahead of the potential bond issues. Nycomed was reportedly working with Goldman Sachs, Credit Suisse, JPMorgan, Deutsche Bank and Bank of America Merrill Lynch, though it was unclear which banks were advising and which were lining up financing.

It will be interesting to see if Nycomed will turn its attention elsewhere as the pharmaceutical industry continues to consolidate and banks become more comfortable lending. The Solvay unit would have offered Nycomed a group of drugs to complement its heartburn treatment Pantoprazole, and the deal would have created a company with about $8.8 billion in sales.

The loss of the deal also marks a setback to Nycomed’s plans to scale it up in anticipation of an IPO, which is reportedly planned for 2011, according to Bloomberg. In August, Zurich-based Nycomed spent an undisclosed amount to buy 20 branded generic products from Sanofi-Aventis, a Paris-based pharmaceutical company, and Zentiva N.V., an Amsterdam-based pharmaceutical company. In its largest acquisition, in 2006, Nycomed bought Altana AG’s drug unit for about $6.6 billion.

DLJ Merchant Banking invested in the company in 2002 as part of a consortium—which includes The Blackstone Group and NIB Capital Equity—that bought the company from Nordic Capital, a Stockholm-based firm. In 2005, Nordic Capital re-invested in the company, buying a 51% stake from DLJ Merchant Banking, Blackstone Group and AlpInvest Partners.

Avista Capital, a New York-based buyout shop, invested $183 million in Nycomed in October 2006, according to market research firm CapitalIQ. —Bernard Vaughan