Subject: Procordia Reaches Accord to Acquire Montedison's Erbamont Drug Division 
Date: Published: 3/23/93 (81 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    International:
    Procordia Reaches Accord to Acquire
    Montedison's Erbamont Drug Division
    ----
    By Stephen D. Moore
    Special to The Wall Street Journal

    STOCKHOLM -- Crowning a marathon courtship, Sweden's Procordia AB
 agreed to acquire Montedison SpA's Erbamont drug division in a
 multistep transaction valued at about $1.2 billion.
    The proposed merger of Erbamont and Procordia's pharmaceutical
 unit Kabi Pharmacia AB would create Europe's eighth-biggest drug
 maker.  For all of its clout -- projected 1993 sales of $3.6 billion
 and an annual research budget of $500 million -- Kabi
 Pharmacia/Erbamont plans to steer clear of such hotly competitive
 areas as cardiovascular and ulcer medicines.  Both companies' main
 products hold dominant shares of niche markets.  Most analysts cite
 Erbamont's pipeline of cancer drugs as the company's most attractive
 assets.
    Under the accord, Procordia will pay Montedison $400 million for
 an initial 51% stake in Erbamont.  At the same time, the Swedish
 concern will assume $400 million in Erbamont debt.  Procordia will
 wield management control of the combined concern from the outset.
    The next phase is a binding two-way option pact through which
 Procordia would purchase the remaining 49% of Erbamont for $500
 million in 1994 or 1995.  However, Montedison retains the right to
 demand completion of the option sale earlier under certain
 circumstances.
    Montedison could eventually receive as much as $320 million in
 payments pegged to sales of three drugs now at early stages of
 development in addition to Rifabutin, a medicine that is just coming
 onto world markets to treat certain opportunistic infections related
 to AIDS.  Montedision and Kabi project Rifabutin's annual sales
 potential at $1 billion, a level that raises eyebrows among
 analysts.  The world's flagship AIDS medicine, Wellcome's Retrovir,
 posted sales of #213 million ($317.7 million) in the year ended last
 Aug. 29.
    Analysts also puzzled over the modest price fetched by Erbamont
 -- barely more than the Italian company's 1992 annual sales of $1.3
 billion.  A valuation of at least two times sales is closer to an
 industry benchmark.  The analysts said the low price may reflect
 Montedision's haste to complete its announced withdrawal from
 pharmaceuticals and chemicals, and use of proceeds of asset sales to
 reduce debt squeezing the parent Ferruzzi group.
    Montedison and Kabi were close to sewing up a similar Erbamont
 purchase last autumn but Procordia's board got cold feet and
 scuttled the deal.  Prodding directors to reconsider was a major coup
 for Jan Ekberg, Procordia's low-key chief executive officer.  Mr. 
 Ekberg won high marks for his handling of a giant 1989 merger that
 spawned the present Kabi Pharmacia.
    Mr. Ekberg claimed the latest acquisition will have only a
 marginal impact on earnings per share this year and actually will
 boost profits beginning next year.  However, that forecast assumes
 Procordia can squeeze about $130 million of annual costs from the
 combined firms' operations within three to four years without
 incurring even bigger one-time restructuring charges in the process.
    Mr. Ekberg said the takeover reflects Procordia's "desire that
 Montedison remain an owner, taking continued responsibility for
 Erbamont's further development.  Montedison is important as a local
 partner for us in Italy, at least in the beginning."
    Kabi Pharmacia's biggest product is a human growth hormone called
 Genotropin, developed by Genentech Inc. Kabi also makes Healon, a
 gel used in cataract surgery, which boasts a near monopoly in its
 market, and the anti-smoking product Nicorette.
    Erbamont has struggled to overcome patent expiry of its biggest
 product, Adriamycin, used to treat solid cancer tumors.  Pressure
 from cheap generic copies have helped strip nearly a third of
 Adriamycin's sales in the crucial U. S. market.  Last year, the
 product posted global sales of less than $150 million, down from
 more than $230 million three years earlier.
    The transaction remains subject to review by European Community
 competition authorities.

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