US deal frees Astra to pursue mergers

ASTRA, THE Swedish pharmaceuticals group, yesterday moved a step closer to a merger with one of its rivals as it regained control of its US joint venture with drugs group Merck in a deal worth a minimum $4.4bn (pounds 2.6bn).

The agreement frees Astra from a requirement to sell all its new products in the US through Merck. The arrangement was seen as one of the biggest barriers to a tie-up between Astra and another player in the rapidly- consolidating pharmaceutical industry.

Zeneca of the UK has been mentioned as a possible partner for the Swedish group, although the company would not comment yesterday.

Under the terms of the complex deal, Astra will have complete control of the Astra Merck joint venture from July, but Merck will continue to receive a share of the company's revenue until 2008.

The Swedish company, maker of the best-selling Prosilec ulcer drug, will have the chance to buy out Merck's 50 per cent stake in the venture in 10 years' time for a minimum $4.4bn in cash. The final payment will be determined by a complex formula based on the average pre-tax income received by Merck in the previous three years, and could rise to $15bn, according to analysts.

If Astra were to merge or be taken over, Merck would lose any right to income from new products but would receive compensation of up to $1.5bn.

The deal will boost Astra profits by more than 5 per cent after 2000 and save $100m a year in costs, although it would lead to a fall in earnings in the first two years of operation.

Merck's senior vice-president, Judy Lewent, said the deal would improve her company's profits from day one.

The Swedish company, the world's 15th-largest drugs group, said it would merge Astra Merck with its existing US subsidiary and rename it Astra Pharmaceuticals. The new entity will have 3,800 employees. It will be headed by Carl-Gustaf Johansson, Astra's executive vice-president.