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FTC Clears Roche-Syntex Merger, But Company Must Sell Diagnostics Unit With PM-Drug Takeovers

August 30, 1994

NEW YORK (AP) _ The nail biting over Roche Holding Ltd.’s $5.3 billion purchase of Syntex Corp. is over.

The two drug companies announced Monday that they’ve signed an agreement with the U.S. Federal Trade Commission to let the stalled deal go through.

There’s only one catch: Roche will have to divest Syva Co., Syntex’s $212 million medical diagnostics business, to satisfy antitrust concerns. Syva represents about 10 percent of Syntex’s annual revenue.

The FTC agreement could ease jitters on Wall Street, where investors had bid Syntex’s stock up from $15.25 to more than $23 on May 2, the day the purchase was announced. Had it fallen through, some investors would have suffered big losses as Syntex shares likely would have plunged.

Roche’s offer was extended several times since the deal was announced.

The FTC apparently felt that combining Syva with Roche’s diagnostics business would give the company unfair control over the market.

Syva and Roche both manufacture chemicals that test for the presence of illegal drugs, along with tests that help diagnose a variety of diseases. Roche’s diagnostics business represented about $1.3 billion of its $10.7 billion in revenue last year.

Roche and Syntex said the agreement is the last regulatory hurdle to the purchase, so it will now complete its $24 per share tender offer to Syntex stockholders.

The purchase was one of the largest in a series of drug industry mergers this year that were prompted by the growth of managed health care in the United States.

Managed care providers such as health maintenance organizations have demanded deep discounts from drugmakers, hospitals and doctors, putting a squeeze on profits. Companies have been scrambling to merge on the theory that broader product lines and cost cutting will allow them to better compete.

In addition to its diagnostics businesses, Roche sells prescription drugs, vitamins, chemicals, flavorings and fragrances. Syntex, based in Palo Alto, Calif., sells a variety of medicines treating everything from heart disease to allergies.

However it was considered weak as a freestanding company because of the expiration of the patent on its leading products, prescription painkillers Naprosyn and Anaprox, in December 1993.

Since then, the drugs have been subjected to stiff competition from cheaper generic versions.

A non-prescription version of the drugs, Aleve, went on sale in June in a Syntex partnership with Procter & Gamble, but analysts said profits from that venture might be slow in coming because of high initial marketing costs.

Syntex has few major new drugs in development, and its profits in the second quarter fell sharply due to declining sales of Naprosyn and Anaprox.

Roche chairman Fritz Gerber said Monday he hopes to complete the deal by Oct. 31. Roche must sell off Syva within a year of the FTC agreement becoming final, which is expected in 60 days.

″We look forward to combining the strengths of Roche and Syntex into an ideal fit for meeting the competitive challenges facing the health care industry,″ Gerber said.

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