BioWorld International Correspondent

Switzerland's Berna Biotech Ltd. is acquiring Rhein Biotech NV, of the Netherlands, in a combined cash and shares deal valued at EUR279 million (US$257 million). The transaction would create a pan-European vaccines powerhouse that aims to achieve revenues of EUR300 million by 2005.

The companies forecast combined vaccine product sales of EUR140 million this year and have a pipeline of 22 vaccines in development, six of which are either currently in or are scheduled to enter Phase III clinical trials before the year's end.

Under the terms of the deal, Rhein Biotech shareholders will be offered 1.42 Berna Biotech shares plus EUR33.75 in cash. Based on a five-day trading average that ended Tuesday - and assuming a proposed 1:25 share split of Berna Biotech's stock is approved at its annual meeting next week - the deal values Rhein Biotech's shares at EUR68.50, a 43 percent premium to its trading average during the same period.

The management of each company is backing the deal, which requires acceptance from a minimum of 75 percent of Rhein Biotech's shareholders. Already, 21 percent of its equity, held by management and by Green Cross Vaccine Corp., of Seoul, South Korea, is committed to the merger. The offer period will commence next month and run to the end of July. Assuming full approval of the deal, Rhein Biotech's shareholders would hold approximately 19 percent of the enlarged company.

"This deal is not about cost cutting, it's not about layoffs. It's about growth and innovation," Berna Biotech CEO Kuno Sommer said in an analyst conference call Wednesday. Sommer is slated to lead the enlarged entity, which would retain the Berna Biotech name and its current headquarters in Berne.

"We see it as a clear merger. That's exactly how we approach it," Daan Ellens, CEO of Maastricht-based Rhein Biotech, told the same audience. Ellens would become deputy CEO of Berna Biotech.

Sommer said the total cost of the deal would be between EUR20 million and EUR25 million, including fees and about EUR4 million to EUR5 million in integration costs. The company would be expected to save EUR4 million by streamlining certain administrative and R&D functions.

The deal brings together two companies with little or no product overlap and with differing geographical emphases. Berna Biotech's vaccines business, which is forecast to achieve EUR60 million in sales this year, is based on its portfolio of influenza and travelers' vaccines. Rhein Biotech, which is aiming for EUR80 million in revenues in 2002, claims global leadership in the supply of hepatitis B vaccine to the public vaccine market. Eighty-nine percent of Berna Biotech's sales came in Europe in 2001, whereas Rhein Biotech derived just 10 percent of its sales from there.

Sommer said the merger would immediately open opportunities for increased sales of Berna Biotech products in emerging country markets. European sales of Rhein Biotech products would not begin to ramp up strongly until 2004 or 2005, he said.

Should the deal go through, it would mark an important step in Berna Biotech's evolution toward becoming a pure-play vaccines outfit. The company, formerly called the Swiss Serum & Vaccine Institute Berne, restructured under new management in 1999 and began to exit from several non-core businesses. Its veterinary products business is now unbundled, Sommer said.

"We will spin it off when it makes sense, when the valuation is higher," he said.

The company also could raise additional cash through a secondary offering, although Sommer did not say that it had other specific acquisitions in mind. "Let's first digest this one," he said. "We will, from a position of strength, drive the industry consolidation."

Berna Biotech's share price slid 6.7 percent during trading on the Swiss Stock Exchange Wednesday, closing at CHF802. Rhein Biotech's shares climbed 17.4 percent on the Neuer Markt in Frankfurt, Germany, closing at EUR62.21.

Berna Biotech was advised by UBS Warburg and Lombard Odier & Cie. Rhein Biotech was advised by Sal Oppenheim & Cie.

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