UPDATED: Hospira to merge with Pfizer for $16B amid device overhaul

Hospira CEO F. Michael Ball

Hospira ($HSP) is merging with Pfizer ($PFE) for about $16 billion as the company attempts to revive its long-beleaguered device business and cash in on a growing sterile injectables and biosimilars market.

Shareholders in the Lake Forest, IL-based company will receive $90 a share in cash, a 39% premium to Wednesday's close. Pfizer will finance the acquisition through a combination of debt and cash, and expects the deal to produce $800 million in annual cost savings by 2018, the companies said in a statement. Both Pfizer's and Hospira's Board of Directors have already signed off on the merger, but the deal still needs approval from regulatory authorities and Hospira's shareholders. The companies plan to close the merger during the second half of 2015.

The deal comes on the heels of change for Hospira, as the company forges ahead with a plan to revive its floundering devices unit. In May 2013, Hospira said it retire older infusion pumps and roll out next-generation products such as its Plum A+, LifeCare PCA and Sapphire pumps. The company's efforts seem to be paying off, with 19% of its $3.3 billion in net sales for the first three quarters of 2014 coming from its Medication Management business, which includes infusion pumps and related services.

Hospira is also working hard to resolve some of its regulatory woes. Last year, the FDA lifted an import ban on one of its infusion pump manufacturing facilities, allowing for renewed sales of the devices in the U.S. Since then, the company scored FDA clearance for two of its new infusion pumps, the SapphirePlus and the Plum360 Infusion System. Hospira expects to complete its device turnaround plan by the second half of 2015.

And Pfizer, for its part, doesn't have any plans of abandoning Hospira's device business after the deal closes. 

"We believe that Hospira has a leading pumps and consumables business, which differentiates them from the competition, which will provide Pfizer with novel capabilities in an adjacent area and a new source of revenue growth," John Young, Pfizer's Group President of Established Pharma, said on a call regarding the merger.

The deal could deliver a big boost to Hospira and Pfizer as the companies look to gain ground in sterile injectables and biosimilars. The global market for generic sterile injectables is expected to grow to $70 billion by 2020, and the market for biosimilars is estimated to be about $20 billion the same year. Hospira is one of the first U.S. drugmakers providing biosimilars to patients in Europe and Australia, and Pfizer already has an established pharma business primed for growth.

"The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines," Hospira CEO F. Michael Ball said in a statement.

This is not the first time Hospira has looked to M&A to revive its fortunes. In July 2014, the company was said to be eyeing Danone's medical nutrition business in a deal estimated at $5 billion. But Hospira abandoned its plans to buy the French company's unit after U.S. lawmakers laid down stricter regulations for companies moving abroad for taxpaying purposes.

- read the release
- get more from the WSJ (sub. req.)
- here's the call transcript (PDF) 

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