NJ-BASED BARR LABS IN BIDDING WAR FOR

UNCLAS SECTION 01 OF 02 ZAGREB 000815

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV HR
SUBJECT: NJ-BASED BARR LABS IN BIDDING WAR FOR
CROATIA'S PLIVA


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1. SUMMARY: NJ-BASED BARR LABS ANNOUNCED A 2.3
BILLION DOLLAR TAKEOVER BID FOR CROATIA'S PLIVA ON
JUNE 28, MARKING THE LARGEST SINGLE FOREIGN
INVESTMENT IN CROATIA AND SPARKING A BIDDING WAR
WITH RIVAL SUITOR ACTAVIS PHARMACEUTICALS OF
ICELAND. ALTHOUGH BOTH PLIVA'S CEO AND THE GOC HAVE
PUBLICLY ENDORSED A PLIVA-BARR MERGER, ACTAVIS
RAISED THE STAKES LAST WEEK, REPORTEDLY BUYING
NEARLY 10 PERCENT OF PLIVA'S SHARES. BARR HAS NOT
BEEN ABLE TO PURCHASE SHARES, PENDING REGULATORY
APPROVAL IN THE U.S., GERMANY AND CROATIA, BUT
COMPANY OFFICIALS REMAIN CONFIDENT THAT THEIR OFFER
WILL PREVAIL. EMBASSY HAS USED RECENT MEETINGS WITH
GOC OFFICIALS AND PRESS STATEMENTS TO UNDERSCORE THE
BENEFITS BOTH FOR CROATIA AND PLIVA OF BARR'S OFFER.
END SUMMARY

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BIDDING WAR
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2. CROATIAN PHARMACEUTICAL HEAVYWEIGHT PLIVA IS THE
OBJECT OF A BIDDING WAR BETWEEN NJ-BASED BARR LABS
AND ACTAVIS OF ICELAND. PLIVA PUT ITSELF ON THE
MARKET AND HIRED DEUTSCHEBANK AS ITS FINANCIAL
ADVISOR, FOLLOWING WHAT IT CONSIDERED A HOSTILE AND
LOW BID OFFER FROM ACTAVIS OF $1.6 BILLION IN THE
SPRING. AT A RECEPTION HELD JUNE 28 IN ZAGREB,
OFFICIALS FROM PLIVA AND BARR ANNOUNCED THAT THE TWO
COMPANIES HAD REACHED AN AGREEMENT FOR BARR TO
ACQUIRE PLIVA FOR $2.2 BILLION. HOWEVER, AT THE SAME
TIME ACTAVIS MADE A COUNTER OFFER AND BEGAN BUYING
PLIVA SHARES ON THE OPEN MARKET. BARR COUNTERED,
UPPING ITS OFFER TO $2.3 BILLION. BARR SAID IT WOULD
PAY PLIVA SHAREHOLDERS 743 KUNA ($131.28) PER SHARE,
AS WELL AS A 12 KUNA ($2.12) DIVIDEND, FOR A TOTAL
CASH CONSIDERATION OF 755 KUNA ($133.40) PER SHARE.
THE CROATIAN PRESS HAS CORRECTLY CALLED BARR'S OFFER
THE LARGEST U.S. INVESTMENT EVER IN CROATIA.

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Barr's Plans for Pliva
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3. BARR AND PLIVA ARE CURRENTLY ASSOCIATED THROUGH A
JOINT VENTURE TO CREATE A GENERIC BIOLOGICAL VERSION
OF A TREATMENT USED TO REGULATE WHITE BLOOD CELL
PRODUCTION. THROUGH PLIVA, BARR WOULD GAIN ENTRY
INTO RUSSIAN AND OTHER EASTERN EUROPEAN MARKETS, AS
WELL AS THE UK, GERMANY, SPAIN AND ITALY. A BARR-
PLIVA UNION WOULD DOUBLE BARR'S ANNUAL SALES TO $2.5
BILLION AND BOOST THEIR COOPERATION IN RESEARCH AND
GENERICS.


4. BARR OFFICIALS SAID THE COMPANY WILL MAINTAIN
PLIVA'S HEADQUARTERS IN ZAGREB AND KEEP ITS SENIOR
MANAGEMENT IN PLACE. BARR HAS ABOUT 2,000 EMPLOYEES
WHILE PLIVA HAS 6,000, INCLUDING SOME IN EAST
HANOVER, N.J.

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ACTAVIS STILL LURKING
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5. ACTAVIS HAS NOT GIVEN UP YET, NOTING THAT BARR
STILL NEEDS A SUCCESSFUL REGULATORY REVIEW IN
GERMANY, THE HART-SCOTT-RODINO CLEARANCE IN THE U.S.
AND APPROVAL FROM THE CROATIAN AGENCY FOR
SUPERVISION OF FINANCIAL SERVICES (HANFA). ACTAVIS
CLAIMED IT DID NOT NEED THOSE APPROVALS, BUT PLIVA
OFFICIALS HAVE SAID THAT IS NOT ENTIRELY TRUE.


6. MEANWHILE ACTAVIS HAS ALSO BEEN BUYING SHARES OF
PLIVA ON THE OPEN MARKET, WHILE BARR AWAITS
REGULATORY APPROVAL. AS A RESULT, ACTAVIS NOW OWNS
9.7 PERCENT OF PLIVA SHARES OUTRIGHT AND HAS OPTIONS
ON A FURTHER 10.7 PERCENT. BARR CALLED ON PLIVA
STOCK-HOLDERS JUNE 30 NOT TO SELL THEIR SHARES IN
ORDER TO ALLOW REGULAR BIDDING. PLIVA OFFICIALS ALSO
ASKED SHAREHOLDERS TO REFRAIN FROM SELLING STOCK
UNTIL ISSUES REGARDING THE OFFERS ARE RESOLVED.

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CURRENT STATE OF PLAY
--------------

7. Pliva publicly endorsed Barr and the GOC echoed
this endorsement, saying it is more important to

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ensure the Pliva brand will continue, that
production will continue in Croatia and that the
company's workforce in Croatia will not be reduced,
than to gain an extra 10 kuna ($1.76) per share. The
GOC, which retains 17 percent of Pliva's shares, and
Pliva officials feel more secure with Barr than with
Activas, which reputedly has links to Russian
capital.

8. Although Actavis officials also have said they
plan to retain the Pliva name in Croatia and
transfer some production to Croatia, analysts doubt
Actavis' true intentions. They point to Actavis'
activities in other countries where it operates with
a significantly cheaper labor force. Actavis has
apparently been on an acquisition binge in the last
few years, acquiring a portfolio of companies it is
yet to integrate and a large amount of debt in the
process.

9. Pliva officials said U.S. anti-trust agencies
need to resolve issues regarding both offers. They
also note that, according to the Croatian Takeover
Law, once a party directly or indirectly acquires
over 25% of the voting shares of an issuer, it is
obligated to immediately inform the issuer, the
public and HANFA.

10. Post has used recent meetings with the GOC,
including Ambassador's farewell calls, to support
Barr. The GOC is eager to see this deal succeed,
which would not only be a good outcome for Pliva,
but would also send a signal of confidence about
Croatia's investment climate.
DELAWIE