Business Acquisitions

3 Months Ended

Mar. 31, 2015

Business Acquisitions

Business Acquisitions

Note 5 — Business Acquisitions

In September 2014, Abbott completed the acquisition of the controlling interest in CFR Pharmaceuticals S.A. (CFR) for approximately $2.9 billion in cash ($2.8 billion net of CFR cash on hand at closing). Including the assumption of approximately $570 million of debt, the total cost of the acquisition was $3.4 billion.  The acquisition of CFR more than doubles Abbott’s branded generics pharmaceutical presence in Latin America and further expands its presence in emerging markets.  CFR’s financial results are included in Abbott’s financial statements beginning on September 26, 2014, the date that Abbott acquired control of this business. Abbott owns 99.9% of the outstanding ordinary shares of CFR.  The fair value of the non-controlling interest at the acquisition date was approximately $3 million.  The acquisition was funded with cash and cash equivalents and short-term investments.  The preliminary allocation of the fair value of the acquisition is shown in the table below.  The allocation of the fair value of the acquisition will be finalized when the valuation is completed.

(in billions)
Acquired intangible assets, non-deductible	$	1.80
Goodwill, non-deductible	1.60
Acquired net tangible assets	0.06
Deferred income taxes recorded at acquisition	(0.54		)
Total preliminary allocation of fair value	$	2.92

Acquired intangible assets consist primarily of product rights for currently marketed products and are amortized over 12 to 16 years (average of 15 years).  The goodwill is primarily attributable to intangible assets that do not qualify for separate recognition.  The goodwill is identifiable to the Established Pharmaceutical Products segment.  The acquired tangible assets consist primarily of cash and cash equivalents of approximately $94 million, trade accounts receivable of approximately $179 million, inventory of approximately $169 million, other current assets of approximately $51 million, property and equipment of approximately $209 million, and other long-term assets of approximately $138 million.  Assumed liabilities consist of borrowings of approximately $570 million, trade accounts payable and other current liabilities of approximately $195 million and other noncurrent liabilities of approximately $15 million.

Annualized net sales for CFR Pharmaceuticals are expected to total approximately $800 million. Had the acquisition of CFR Pharmaceuticals taken place on January 1, 2013, the consolidated net sales and earnings of Abbott would not have been significantly different from the reported amounts.

In December 2014, Abbott acquired control of Veropharm, a leading Russian pharmaceutical company for approximately $315 million excluding assumed debt. Through this acquisition, Abbott establishes a manufacturing footprint in Russia and obtains a portfolio of medicines that is well aligned with Abbott’s current pharmaceutical therapeutic areas of focus.  Abbott acquired control of Veropharm through its purchase of Limited Liability Company Garden Hills, the holding company that owns approximately 98 percent of Veropharm.  Including the assumption of approximately $90 million of debt and a minority interest with a fair value of $5 million, the total value of the acquired business was approximately $410 million.  The preliminary allocation of the fair value of the acquisition resulted in definite-lived non-deductible intangible assets of approximately $100 million, non-deductible goodwill of approximately $110 million, and net deferred tax liabilities of approximately $35 million.  Non-deductible goodwill is identifiable with the Established Pharmaceutical Products segment.  Additionally, Abbott acquired property, plant, and equipment of approximately $170 million, accounts receivable of approximately $45 million, inventory of approximately $25 million, and net other liabilities of approximately $5 million.  Acquired intangible assets consist of developed technology and are being amortized over 16 years.

In December 2014, Abbott completed the acquisition of Topera, Inc. for approximately $250 million in cash, plus additional payments up to $300 million to be made upon completion of certain regulatory and sales milestones.  The acquisition of Topera provides Abbott a foundational entry in the electrophysiology market.  The final allocation of the fair value of the acquisition resulted in non-deductible acquired in-process research and development of approximately $20 million, which is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, non-deductible definite-lived intangibles assets of approximately $325 million, non-deductible goodwill of approximately $175 million, net deferred tax liabilities of approximately $105 million, and contingent consideration of approximately $165 million.  The fair value of the contingent consideration was determined based on an independent appraisal.  Acquired intangible assets consist of developed technology and trademarks, and are being amortized over 16 years.

The preliminary allocations of fair value of the acquisitions of CFR Pharmaceuticals and Veropharm will be finalized when valuations are completed. Had the aggregate of the above acquisitions taken place on January 1, 2013, consolidated net sales and earnings would not have been significantly different from reported amounts.