(Updates with closing stock price in 14th paragraph.)
June 22 (Bloomberg) -- Dentsply International Inc. agreed to buy AstraZeneca Plc’s Astra Tech unit, a Swedish manufacturer of dental prosthetics and medical devices, for $1.8 billion to become the world’s third-biggest maker of teeth implants.
The cash transaction will be completed in the second half, London-based AstraZeneca said today in a statement. Dentsply of York, Pennsylvania, said the purchase will double its position in dental implants, a market whose annual growth rate will accelerate to 13 percent from 6 percent within two years, according to Sanford C. Bernstein & Co. estimates.
AstraZeneca, the U.K.’s second-largest drugmaker after GlaxoSmithKline Plc, is selling the business to focus on developing patented pharmaceuticals to replace sales that will be lost to generics. It sought about $2 billion for Astra Tech, three people with knowledge of the matter said in November.
“Obviously $2 billion would’ve been a good price, but in this market they should take a price close to it,” said Navid Malik, an analyst at Matrix Corporate Capital LLP in London. “It seems like a good deal to me.”
Astra Tech, based in Moelndal, Sweden, has 2,200 employees and owns subsidiaries in 16 markets and had sales of $535 million last year. The dental unit attracted interest from implant makers, including Nobel Biocare Holding AG, while private-equity firms looked at the operation that produces devices for urology and surgery as well as the whole unit.
Cash and Debt
Dentsply, which makes prosthetics as well as equipment and supplies used in dentistry, had cash of $575.3 million at the end of the first quarter. It will finance the acquisition with cash, commercial paper and long-term debt. The company said the transaction will add $0.12 to $0.17 to adjusted earnings per share in the first year after closing.
“The combination more than doubles our position in dental implants while expanding the breadth of our portfolio in this growing segment of dentistry,” Chief Executive Officer Bret Wise said in a statement.
Moody’s Investors Service put its ratings on about $200 million in Dentsply debt on watch for a possible downgrade. The review will focus on the company’s business plan, financial profile and increased leverage from the acquisition, the ratings company said.
The acquisition will be a good deal for Dentsply, said Jeff Johnson, an analyst at Robert W. Baird in Milwaukee, in a telephone interview.
“Dental implants should be a higher-growing segment of the market over the next three to five years,” Johnson said. “Historically sales of implants grew in the 15 percent to 20 percent range, but in the downturn they have been hit harder than other segments of the market. We believe dental implants can get back to being a growing part of the business.”
Dentsply will become the No. 3 manufacturer of dental implants behind Straumann Holding AG and Nobel Biocare of Switzerland, according to Lisa Bedell Clive, an analyst with Sanford C. Bernstein in London.
Nobel Biocare rose 1.9 percent in Zurich trading as the Dentsply agreement pointed to optimism about global demand for implants and kindled speculation that bidders who didn’t succeed in getting Astra Tech may turn to other targets, Clive said.
“If Dentsply is willing to pay that for Astra Tech that means they are bullish about the dental implant market,” Clive said in a telephone interview today.
Dentsply climbed 71 cents, or 1.9 percent, to $38.32 at 4:00 p.m. in Nasdaq Stock Market composite trading, giving the company a market value of $5.4 billion.
The sale will have no impact on AstraZeneca’s profit target for this year, because the company said the gain will be excluded from what it calls core financial measures. AstraZeneca in April said it expects core earnings of $6.95 to $7.25 this year.
“We believe this transaction represents an excellent outcome for AstraZeneca shareholders,” CEO David Brennan said in today’s statement. The sale needs approval from regulators, the company said.
AstraZeneca rose 21 pence, or 0.7 percent, to 3,046 pence in London trading. The stock has returned 4.2 percent this year including reinvested dividends, compared with a 5.1 percent return for the Bloomberg Europe Pharmaceutical Index.
Patents expire in the U.S. on two of AstraZeneca’s biggest- selling drugs, the Seroquel antipsychotic and Nexium for heartburn, in 2012 and 2014, respectively, according to Bloomberg data. Sales will be $28 billion to $34 billion a year through 2014, the company said in January. AstraZeneca’s revenue last year totaled $33.3 billion.
Buyers have announced 83 acquisitions of medical-products companies this year, according to data compiled by Bloomberg, up from 70 in the same period a year earlier. Johnson & Johnson agreed to purchase Synthes Inc. for $21.3 billion in this year’s biggest announced deal.
AstraZeneca said Nov. 19 it was considering options for the dental business and had hired JPMorgan Chase & Co. Morgan Stanley acted as Dentsply’s financial adviser and Skadden, Arps, Slate, Meagher & Flom served as legal counsel.
--With assistance from Michelle Fay Cortez in Minneapolis and Catherine Larkin in Washington. Editors: Marthe Fourcade, Bruce Rule.
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