DOUBTS INCREASE OVER PERRIGO'S ACQUISITION OF ISRAEL'S AGIS

Local reports claim that a bid by leading US OTC medicines producer Perrigo for Israel's second-largest drug producer, Agis, could be about to fail. Recent negative news over Perrigo's withdrawal of key allergy treatment Loratadine in the US may now jeopardise the financial basis of the planned US$818mn acquisition. Meanwhile, Agis' market valuation has increased in the last few months.

Under the terms of the purchase agreement, Agis is entitled to terminate the acquisition if there is a "substantial" deterioration in Perrigo's fourth-quarter results. Although the precise definition of such a deterioration remains unclear, a withdrawal from the deal under these conditions would absolve Agis of a US$25mn exit charge. Further, if a shareholders' meeting in February fails to approve the bid, Agis would only incur a US$5mn penalty.

The purchase had been originally intended to create a diversified healthcare company, in view of the Israeli company's extensive portfolio in both active pharmaceutical ingredients and generics. Agis, for its part, had hoped the merger would boost its exports, amid depressed domestic market conditions. Israeli drug exports grew 32.7% in the first three quarters of 2004, to some US$884mn, against import growth of only 2.5%.