(Corrects size of TPG’s Schiff stake in 10th paragraph of article published Oct. 30.)
Bayer AG (BAYN) agreed to buy Schiff Nutrition International Inc. (SHF:US) for $1.1 billion to add a faster- growing vitamins and nutritional supplements business to the German drugmaker’s consumer-health unit.
Investors will receive $34 a share in cash, Leverkusen- based Bayer said in a statement today. The price is 47 percent above Schiff’s closing level Oct. 26, the most recent day of stock trading in the U.S. Bayer also said its third-quarter profit rose 2.2 percent.
Bayer will strengthen its U.S. consumer-health unit with the Salt Lake City, Utah-based business. Signed about six weeks after Bayer agreed to buy Teva Pharmaceutical Industries Ltd. (TEVA:US)’s animal-health business, the deal fits Bayer’s strategy of building its life sciences unit with small- and mid-sized acquisitions, Chief Executive Officer Marijn Dekkers said.
“These are two of the areas that we are very committed to growing, both organically and with these bolt-on acquisitions,” Dekkers said in a Bloomberg Television interview today.
Schiff sales in the year ended May 31 totaled $259 million. The company said last month that sales this fiscal year would increase by 43 percent to 46 percent after its acquisition of Airborne, the cult cold-prevention remedy featured by Oprah Winfrey.
Schiff also makes Tiger’s Milk nutrition bars, Omega-3 product MegaRed and Move Free, a pill for joints.
The U.S. company won’t seek a competing offer, though it has the option to review unsolicited bids until Nov. 28, Schiff said in a regulatory filing today. Chairman Eric Weider’s company Weider Health and Fitness, which owns a controlling stake in Schiff, agreed to the deal, according to the filing.
“Nutritionals are a reasonably fast-growing area,” said Alistair Campbell, an analyst at Berenberg Bank in London who recommends buying Bayer stock. “It broadens their product line.”
The deal is expected to close by the end of 2012. Bayer was advised by Bank of America Merrill Lynch. Rothschild and Houlihan Lokey advised Schiff.
Schiff declined 0.4 percent to close at $23.19 on the New York Stock Exchange Oct. 26. Trading was closed yesterday in the U.S. because of Hurricane Sandy, and markets will remain closed today. TPG, the Fort Worth, Texas-based buyout firm, owns 25 percent of Schiff’s shares (SHF:US), according to Schiff.
The purchase including net debt values Schiff at about 17.8 times this year’s estimated earnings before interest, tax, depreciation and amortization. Buyers have paid a median 16.9 times profit for acquisitions of vitamin companies over the past five years, according to data compiled by Bloomberg.
Bayer has no upper limit for deals, though it’s primarily seeking smaller acquisitions, Dekkers said in a conference call with reporters.
The purchase price is based on about 31.1 million shares outstanding, including shares underlying stock options. Bayer also is assuming $122 million in net debt.
Growth in the health and crop-chemical business helped push earnings up in the third quarter, Bayer said in a separate statement today. Earnings before interest, taxes, depreciation, amortization and special items increased to 1.85 billion euros ($2.39 billion) from 1.81 billion euros a year earlier, Bayer said. That beat the 1.83 billion-euro estimate of 11 analysts surveyed by Bloomberg.
Sales rose 12 percent to 9.67 billion euros. Bayer raised its forecast for the plastics unit, saying it now expects a small increase in sales. The company had previously said sales and profit from plastics wouldn’t rise this year.
Bayer, Johnson & Johnson (JNJ:US)’s partner on the blood thinner Xarelto, has been leaning on its health-care and agriculture units for growth. The company reiterated today that sales will increase 4 percent to 5 percent this year, with a “high single- digit” percentage boost to adjusted Ebitda.
Sales in the crop-science unit increased 19 percent to 1.64 billion euros in the third quarter. Consumer-health sales climbed 12 percent to 1.99 billion euros.
“It continues an excellent year for crop,” said Berenberg’s Campbell. “The big question is going to be whether this is because of growing conditions” and whether they’ll be able to continue the growth next year with this year’s strong basis for comparison.
Bayer rose 1.7 percent to 67.65 euros in Frankfurt.
The company said yesterday that Liam Condon, 44, has been named chairman of the executive committee of the crop-science unit. He replaces Sandra Peterson, who’s leaving Bayer Nov. 30 to join Johnson & Johnson.
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