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August 22, 2009

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Lonza outbids PE group for Patheon

SWISS drugs industry supplier Lonza has outbid private equity group JLL for Canadian rival Patheon in a deal worth US$460 million, seeking to boost its manufacturing capacity.

Lonza's bid of US$3.55 per share for Patheon offers a potential windfall to majority shareholder JLL, which launched an offer at US$2 a share last December and has been building its stake since.

The non-binding offer, priced at a premium of 50 percent to Patheon's Thursday's close of C$2.58 (US$2.35), gives the Canadian group an enterprise value of US$700 million.

"We think this is a fair value for the company based on our current assumptions. We now have to conclude the due diligence. The entire business is appealing to us because its the area of business we want to move in," a Lonza spokesman said.

"We are not willing to enter into a bidding war," he said.

Analysts said the deal made strategic sense for Lonza, as it would allow it to offer drug makers a wider range of services, but expressed some concerns about Patheon's profitability and a possible bidding war.

"From a strategic standpoint this acquisition makes sense. However, from a financial standpoint the deal will be dilutive in the beginning and can only become accretive if Lonza can achieve an operational turnaround," said Vontobel analyst Carla Baenziger.

Lonza, which has warned its operating profit will not rise this year, said the acquisition would be accretive for earnings per share from the second year and would improve its return on assets.

Lonza, which had net cash of 231 million Swiss francs (US$217 million) at the end of June, said it planned to finance the deal from existing cash resources and bond instruments.


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