Bayer acquires Schiff for $1.2 billion

German pharmaceutical and chemical company Bayer AG Tuesday bolstered its U.S. consumer-health operations with the acquisition of vitamins maker Schiff Nutrition Inc. for about $1.2 billion.

"The Schiff business significantly enhances our presence and position in the U.S., which accounts for more over-the-counter and nutritional products sales than any other country in the world," said Bayer Chief Executive Marijn Dekkers.

A Bayer subsidiary in the U.S. signed an agreement to buy the maker of the popular cold remedy Airborne for $34 a share—47% more than Friday's closing price. The $1.2 billion price tag includes €120 million to €130 million ($154.85 million to $167.75 million) in debt. The deal is expected to close by the end of the year.

The acquisition strengthens Bayer's position in the U.S. consumer-health market, which generates annual sales of $35 billion to $40 billion, according to Bayer. It is the latest in a string of medium-size takeovers in the U.S. for Bayer, after it bought AgraQuest, a maker of biological crop protection, for $425 million in August, and agreed to buy Teva Pharmaceutical Industries Inc.'s U.S. animal health business for up to $145 million in September.

"Bayer is committed to augment its organic growth with strategic bolt-on acquisitions" in health care and agriculture, said Mr. Dekkers.

Salt Lake City, Utah-based Schiff employs about 400 people and expects to generate net sales of $370 million to $378 million for the fiscal year ending May 31, 2013. In addition to Airborne, Schiff makes vitamins, supplements and nutrition bars, among other OTC health products.

Schiff's two main shareholders, who hold a combined 85% of voting rights in the company, have accepted the bid, triggering a squeeze-out of the minority shareholders under U.S. law, said Bayer Chief Financial Officer Werner Baumann.

Analysts said the price tag for Schiff appears expensive. "The deal appears consistent with Bayer's strategy, and although the premium paid appears rich at first, our reaction is it isn't outlandish," said Bernstein Research analyst Jeremy Redenius. The price values Schiff at 17 times the earnings before interest, taxes, depreciation and amortization expected by analysts on average, he said.

Bayer also on Tuesday reported a rise of almost 12% in third-quarter revenue compared with a year earlier to €9.67 billion, helped by the devaluation of the euro against other currencies such as the dollar, and strong demand for pesticides. Net profit, however, declined 18% to €528 million because of €205 million in provisions for damage claims related to its Yasmin and Yaz contraceptives in the U.S. and €134 million in restructuring expenses.

The Yasmin and Yaz charges add to €496 million in special items related to litigations in connection with the birth control pills, which Bayer had booked in the second quarter. Claimants allege that users of the drugs have suffered injuries, some of them fatal. Bayer has settled claims of about 3,490 claimants as of Oct. 15 for a total amount of about $750 million. The company said it is only settling claims in the U.S. for venous clot injuries, which are alleged by an additional 3,800 claimants.

(Published by WSJ - October 30, 2012)