PFE Pfizer Inc

By Dana Mattioli and Denise Roland 

Lonza Group AG on Thursday said it had agreed to buy Capsugel, a New Jersey-based maker of drug capsules, from private-equity company KKR & Co., in a deal valued at $3.5 billion excluding debt refinancing.

The Basel, Switzerland-based pharmaceutical company said it expected the deal to accelerate growth and boost earnings in the first full year after closing. The transaction, which also includes the refinancing of about $2 billion of Capsugel's existing debt, has already been approved by the boards of both companies.

News of the deal came just days after Lonza confirmed it was in talks to acquire Capsugel, after The Wall Street Journal reported that KKR was nearing an agreement to sell the business.

Capsugel, based in Morristown, N.J., makes capsules used for the delivery of drugs and food supplements. Its designs are used in vitamins, over-the-counter drugs, dietary supplements and prescription medicines. KKR bought Capsugel from pharmaceutical giant Pfizer Inc. for $2.4 billion in 2011.

Lonza produces a wide range of chemical, health care and personal-care products and has been scouring for a possible deal. The acquisition of Capsugel will broaden the range of manufacturing and development services it can provide to drugmakers.

The company said it expected to achieve operating synergies of 30 million Swiss francs ($31.6 million) and tax synergies of 15 million francs a year by 2019 from the deal and 100 million francs a year in top line synergies in the mid-to-long term.

Lonza said the deal would be positive for core earnings per share in the first full year post-close.

The transaction is expected to close in the second quarter of 2017. Jefferies acted as the lead financial adviser to Lonza, alongside UBS and Bank of America Merrill Lynch. Goldman Sachs advised Capsugel.

While health care deal-making has dropped from 2015's brisk pace, several companies that provide ancillary products and services to the pharmaceutical sector have announced combinations lately.

Blackstone Group LP in October agreed to lead an acquisition of healthcare-staffing provider Team Health Holdings Inc. for more than $3 billion. Software-and-data company IMS Health Holdings Inc. in October merged with outsourcer Quintiles Transnational Holdings Inc. in a deal worth nearly $9 billion.

Private-equity companies Carlyle Group LP and Hellman & Friedman LLC are seeking buyers for drug-research company Pharmaceutical Product Development LLC, which could fetch around $5 billion, The Wall Street Journal reported last week.

Write to Dana Mattioli at dana.mattioli@wsj.com and Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

December 15, 2016 09:33 ET (14:33 GMT)

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