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Technilab Pharma Inc. has accepted an $80-million takeover bid from German drug giant Merckle GmbH, saying it was motivated by competition in the generic drug sector and the need to get larger.

In response to the $6.10-a-share bid yesterday, Technilab shares jumped 25 per cent or $1.20 to $6 on the Toronto Stock Exchange.

"There is no question that the marketplace has recently become very competitive and has negatively impacted the company's recent financial results," Technilab president and chief executive officer Jacques Boisvert said in a statement.

For the second quarter ended Feb. 29, Montreal-based Technilab posted a loss of $295,000 or 2 cents a share, compared with a profit of $1.4-million or 11 cents a year earlier. The company also lost money in the first quarter.

"We realize that success in the generic pharmaceutical industry is more than ever driven by critical mass and rapid market penetration," he said, adding that Merckle has an extensive understanding of the industry and the resources to support Technilab's future growth.

Claude Camiré, an analyst with Dundee Securities Inc., said provincial health insurance plans have limited the prospects for higher generic drug prices. "While new products can improve margins, these seem to erode quickly," he said, adding that in the face of weaker prices, costs continue to rise.

Mr. Camiré said Technilab also has been struggling to integrate its acquisition last year of AltiMed Pharmaceutical Co. of Mississauga.

Vincent Taillefer, a spokesman for Technilab, said the weak market has made it difficult for the company to continue financing its growth, especially in the United States.

The acquisition of Technilab would continue a consolidation trend that has been sweeping the pharmaceutical industry around the globe.

Earlier this year, Novopharm Ltd. of Toronto said the need to team up with a stronger company in order to remain competitive prompted its decision to be acquired by Israel's Teva Pharmaceutical Industries Ltd. for $285-million (U.S.) in stock.

Technilab said certain members of the Sabourin family, who own about 65 per cent of the 13.2 million outstanding shares of Technilab, have entered into a lock-up deal with Merckle and have agreed to irrevocably tender their shares to the offer.

In addition, the company said it has received an opinion from Wasserstein Perella & Co. Inc. of New York that the offer is fair to shareholders from a financial point of view. As a result, the Technilab board has agreed to support the offer.

Under the accord, Technilab would become a unit of Merckle's generic arm, Ratiopharm GmbH.

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