DGAP Ad-hoc − Fresenius SE & Co. KGaA: Fresenius Kabi to strengthen and diversify product portfolio by acquiring Akorn and Merck KGaA's biosimilars business

Fresenius SE & Co. KGaA / Key word(s): Mergers & Acquisitions

24-Apr-2017 / 22:54 CET/CEST
Disclosure of an inside information acc. to Article 17 MAR, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

Fresenius Kabi to strengthen and diversify product portfolio by acquiring Akorn and Merck KGaA's biosimilars business

Acquisition of Akorn to strengthen and diversify core business and product portfolio
Fresenius Kabi has agreed to acquire Akorn, Inc. a U.S.-based manufacturer and marketer of prescription and over-the-counter pharmaceutical products, for approximately US$4.3 billion, or $34 per share, plus approximately US$450 million of net debt (Fresenius projection of as of December 31, 2017).

Akorn produces and markets a diverse product portfolio of injectables, topical creams, ointments and gels, sterile ophthalmics, as well as oral liquids, otic solutions (for the ear), nasal sprays and respiratory drugs. Akorn products are sold in retail pharmacies (prescription and over-the-counter) and directly to physicians, in addition to hospitals and clinics - almost exclusively in the U.S.

Akorn announced today that based on a preliminary review of Q1/17 results, it is reaffirming its previously announced 2017 guidance (including revenue of US$1,010 to 1,060 million and adjusted EBITDA of US$363 to 401 million), excluding any one-time costs related to the transaction with Fresenius Kabi. The total purchase price corresponds to approximately 12.4x adjusted EBITDA at the mid-point of the expected 2017 range. Assuming the transaction closes at the end of 2017, Fresenius Kabi projects 2018 sales from this business of US$1,035 to 1,085 million, and EBITDA before integration costs of approximately US$380 to 420 million.

Mid-term, the acquisition is expected to create cost and growth synergies of approximately US$100 million p.a. before tax. Fresenius Kabi expects a progressive ramp-up of those synergies which will be achieved by integrating and modernizing Akorn's production network and by combining other functions. For the period from 2018 to 2022, Fresenius Kabi expects integration costs of approximately US$140 million before tax in total. The integration costs are projected to be frontloaded with the major impact in 2018.

Fresenius expects the acquisition to be accretive to Group net income and Group EPS in 2018, excluding integration costs, and to contribute positively from 2019 onwards including integration costs.

Akorn's board recommends the approval of the transaction and merger agreement with Fresenius Kabi to its shareholders. Akorn's largest shareholder, who beneficially controls approximately 25% of its shares, has committed to supporting the transaction. The transaction is subject to customary closing conditions, including regulatory review under the Hart-Scott-Rodino Antitrust Improvements Act in the U.S. and approval by Akorn shareholders. Closing is expected by early 2018.

The purchase price will be financed by a broad mix of Euro and US-Dollar denominated debt instruments.

Entry into growing biosimilars market
Fresenius and Merck KGaA announced today that Fresenius Kabi will acquire Merck's biosimilars business, which comprises the entire development pipeline and an experienced team of more than 70 employees located in Aubonne and Vevey, Switzerland. The product pipeline has a focus on oncology and autoimmune diseases.

Fresenius Kabi expects first sales towards the end of 2019 and estimates to ramp-up the business to high triple-digit million sales from 2023 onwards based on the current product development schedule. Fresenius Kabi has agreed to pay single digit percentage royalties to Merck based on sales.

The purchase price will be up to EUR670 million. Thereof, EUR170 million will be paid in cash upon closing. Approximately EUR500 million are milestone payments strictly tied to achievements of development targets. Analytical testing, clinical studies, quality requirements specific to biosimilars as well as marketing and sales activities are expected to result in increased costs for Fresenius Kabi. These costs are expected to occur in uneven tranches. The total expected cash-out and self-imposed investment ceiling is estimated to be up to EUR1.4 billion until projected EBITDA break-even in 2022. From 2023 onwards, the acquisition is expected to be significantly accretive to Group net income and Group EPS.

The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in H2/2017.

The total investment in the biosimilars business will be mainly cash flow financed.

Implications of transactions on Group Financials

Fresenius confirms its 2020 earnings target range of EUR2.4 to 2.7 billion.

Both transactions combined are expected to be neutral to Group net income and EPS by 2020 and accretive from 2021 onwards. Before amortization and before integration costs, both transactions combined are projected to be neutral to Group net income and EPSby 2018 and to contribute positively from 2019 onwards.

Group net debt/EBITDA will temporarily increase to approximately 3.3 after closing of both transactions. The leverage ratio is expected to return to approximately 3.0 at the end of 2018.

Fresenius SE & Co. KGaA,
represented by Fresenius Management SE,
Board of Management

Bad Homburg v.d.H., 24 April 2017

* For a definition of Akorn's adjusted EBITDA please refer to Akorn's FY/16 press release as of 1 March 2017
** Net income attributable to shareholders of Fresenius SE & Co. KGaA

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For additional information on the performance indicators used please refer to our website at https://www.fresenius.com/alternative-performance-measures

For information regarding non-GAAP financial measures or adjusted figures derived from Akorn's public information, please see section 'Non-GAAP Financial Measures' on Akorn's FY/16 press release using following link: http://investors.akorn.com/phoenix.zhtml?c=78132&p=irol-newsArticle&ID=2250528
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Contact:

Markus Georgi
Senior Vice President Investor Relations
T: [phone]
[e-mail]

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THIS RELEASE IS FOR INFORMATION PURPOSES ONLY.
This release does not constitute or form part of, and should not be construed as, any offer or invitation to subscribe for, underwrite or otherwise acquire, any securities of Fresenius SE & Co. KGaA ('Fresenius') or any present or future member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities in Fresenius or any member of its group or any commitment whatsoever.

In particular, this release is not an offer of securities in the United States of America (including its territories and possessions), and securities of Fresenius may not be offered or sold in the United States of America absent registration under the Securities Act of 1933 (which Fresenius does not intend to effect) or pursuant to an exemption from registration.

The information contained in this release is for background purposes only and is subject to amendment, revision and updating. Certain statements contained in this release may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties. In addition to statements which are forward-looking by reason of context, including without limitation, statements referring to risk limitations, operational profitability, financial strength, performance targets, profitable growth opportunities, and risk adequate pricing, as well as the words 'may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, or continue', 'potential, future, or further', and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements as a result of, among other factors, changing business or other market conditions and the prospects for growth anticipated by the management of Fresenius. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this release regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Fresenius does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release.

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