The tussle over German generic drugs maker Ratiopharm is drawing to a close as the three remaining contenders square off in the final round of bidding, sources close to the deal told Reuters on Wednesday. Pfizer was submit its bid on Wednesday, a person briefed on the matter said.

With an expected price tag of above €3 billion, Ratiopharm would be selling at roughly two times sales, below historical generic drugs M&A multiples of three to four, reflecting the tough market conditions in Germany, JP Morgan analyst Chris Schott said in a recent research note.

Rival bidder Actavis of Iceland is about to follow suit with a bid that would value the target at more than €3 billion including debt, two people familiar with Actavis' plans said.

This would make the deal the biggest generics takeover since Teva's $7.5 billion purchase of U.S. rival Barr, and would give the winner a large slice of the world's second-biggest generics market.

Sources have said that Deutsche Bank, Actavis' main lender, is backing the move, targeting €300 million euros in annual synergies at the combined company and improving its chances to recoup more than €4 euros of debt to Actavis.

But Teva and Pfizer are regarded as determined contenders, eyeing immediate entry into Germany. Israel's Teva, the world's largest generics company, would submit its make-or-break offer on Thursday at the latest, a person familiar with the company's plans said.

Pfizer Looks at Possible Stada Takeover
Pfizer's CEO Jeff Kindler - used to getting his way on acquisitions -will likely train his sights on German generic drugmaker Stada if Ratiopharm slips through his fingers. Stada, based on its current share price and debt - but without any takeover premium - is worth about €2.7 billion.

Financially, it is a small deal for Pfizer but it represents a bold strategic move by the world's biggest maker of branded medicines, which has decided to embrace cheaper off-patent drugs as part of a diversification drive.

Buying a big European generics operation would be simpler and quicker than buying a string of small businesses in different countries, or setting up operations from scratch. One person close to Pfizer said the U.S. drugs major would certainly look to Stada as a consolation prize if it were to lose the Ratiopharm auction. Healthcare bankers and analysts also believe Kindler will not want to simply walk away from Germany. In many ways, Stada would actually be a better fit for Pfizer than Ratiopharm.

"It would make a lot of sense for Pfizer to look at it and, in fact, it is probably a more attractive fit because it also has some emerging market businesses which Ratiopharm doesn't," said one banker.

Stada derives around two-thirds of its revenue from outside Germany and has a strong presence in Eastern Europe, including Russia, while Ratiopharm generates about half its sales in its home market, with Canada and Western Europe also big markets.

Stada enjoys slightly slimmer margins than Ratiopharm, with 2009 earnings before interest, tax, depreciation and amortisation at 17% of revenues, according to Thomson Reuters data, compared with Ratiopharm's 18.8%. But both lag sector heavyweight Teva, with forecast 2010 Ebitda margins of nearly 36%.

No 'For Sale' Sign
The one problem is that Stada is not for sale and Kindler may well balk at a hostile transaction in the generics space. The German group has long been a suggested takeover target but its management has steadfastly rebuffed approaches - at least until now.

Stada also enjoys strong backing from German pharmacists, many of whom are also its shareholders - an influential group that any potential acquirer will want to keep onside. Teva, too, could be interested in Stada, although analysts see it as a less compelling fit for the Israeli firm, which already has access to key eastern European growth markets after acquiring Croatia's Pliva as part of the Barr deal in 2008.

"Teva would have too much of a geographical overlap with Stada," said Peter Duellmann, head of healthcare equity research at Sal. Oppenheim.

"It is Pfizer's aim to broaden its Established Products unit, to add new products and regions. With its presence in Eastern Europe, Stada seems to be the better of the two assets for Pfizer."

Actavis, meanwhile, is viewed as an unlikely bidder for Stada, since its interest in Ratiopharm is specific to that company, reflecting the role of Deutsche Bank in the debt of both groups.
Ratiopharm currently vies with Stada for second place among Germany's largest generic drugmakers, trailing the Hexal business of Swiss drug major Novartis.

Stada, whose shares have tripled from a low of €10 last March following an improved performance, has a market capitalization of €1.7 billion and net debt of €1 billion, implying a sales multiple of around 1.7 times.

All the companies involved have declined to comment on the Ratiopharm auction process.