Akzo Nobel Sells Drug Unit to ScheringPlough

Correction Appended

LONDON, March 12 - The Schering-Plough Corporation agreed on Monday to buy the Organon BioSciences unit of Akzo Nobel for .4 billion in cash in a surprise move that fueled further takeover speculation in the industry.

The acquisition astounded investors, who were waiting for the announcement of a planned billion initial public offering of Organon, which makes birth control pills. Shares in Akzo Nobel, the world's largest maker of paints and coatings, rose 8.94 euros, or 15 percent, to 69.73 euros in Amsterdam, their highest level in five years.

"This came as a complete shocker and the price is phenomenal," said Mark van der Geest, an analyst at Rabo Securities in Amsterdam. "There is room for more acquisitions in the pharma and chemical industries, and the deal makes Akzo another cash-rich company."

The sale prompted speculation that Akzo may use the proceeds to expand its coatings and chemicals businesses. Shares in Imperial Chemical Industries, Britain's largest specialty chemical maker, rose 26.5 pence, or 5.7 percent, to 490 pence, on takeover speculation, giving it a market value of £5.88 billion ( billion).

Sherwin-Williams, America's largest paint maker, and the Valspar Corporation, the American industrial coating producer, may also be takeover targets for Akzo, analysts said.

Akzo may have to make an acquisition to avoid becoming a takeover target itself, now that it is flush with cash. The company could be interesting for private equity companies, Mr. van der Geest said.

The money from the Organon sale will help finance Akzo's growth strategy, reduce pension liabilities and debt and pay for a share buyback worth about 1.3 billion euros (.7 billion), the company said in a statement on Monday.

Akzo is selling Organon, whose sales have lagged behind rivals, to focus on its coating and chemicals businesses, ending 80 years of making medicine. Akzo was one of the last European companies with both a chemical and pharmaceutical business. BASF, AstraZeneca and Novartis all split their businesses over the last five years.

Schering-Plough, based in Kenilworth, N.J., is paying about 13.7 times 2007 estimated earnings before interest, taxes, depreciation and amortization for Organon, compared with about 8 times when Bayer, the German drug maker, bought Schering A.G. for 17 billion euros last year.

Fierce competition among pharmaceutical companies for new products has pushed up prices for takeovers in the industry. In September, to add new drugs, Merck K.G.a.A., the German drug maker that lost out in the bidding war for Schering, paid .3 billion for Serono, Europe's largest biotechnology company.

For Schering-Plough, the acquisition means it will get Organon's birth control pill Marvelon and five experimental drugs, including asenapine for schizophrenia and sugammadex, a chemical for general anesthesia.

Schering-Plough expects to "unlock" more value from Organon's products by adding it to existing businesses than would have been possible for Organon through an initial offering, the company said in a statement Monday.

Organon traces its origins to 1923, when Saal van Zwanenberg started to make estrogen and produce insulin from the pancreases of animals.

Organon became part of Akzo when its holding company, Koninklijke Zout-Organon, merged with Algemeene Kunstzijde Unie to create Akzo in 1969.

Fred Hassan, Schering-Plough's chief executive, has said that more than half the company's products might come from outside sources by the end of this year. It bought a nail fungus drug from Anacor Pharmaceuticals for about 5 million this year and said it was looking for more additions to its drug pipeline.

Akzo and Schering expect to complete the transaction in the second half of this year.

Correction: March 15, 2007

A headline in Business Day on Tuesday about the acquisition of the Organon BioSciences unit of Akzo Nobel misstated the purchaser. It is Schering-Plough, not Schering A.G., an unrelated German company. Also, the article referred imprecisely to an earlier deal in the drug industry. Bayer, the German drug maker, last year acquired Schering, not Schering-Plough.

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