CSL grabs a second lucky prize

Few companies get to buy assets that put them on a global footing, at depressed prices. CSL has now done it twice.

CSL is arguably Australia’s ‘lucky company’. Of course when luck favoured CSL its chief executives had to be smart enough to take advantage.

And so today CSL acquired the Novartis influenza vaccine production business, which has plants in the US, the UK and Germany and moves from an Australian to a global player. CSL was lucky to be able to pick up the Novartis flu operation for just $US275 million because Novartis is involved in a massive asset swap exercise with GlaxoSmithKline. The GlaxoSmithKline group will take the Novartis vaccine business, excluding flu, and Novartis will take Glaxo’s cancer business.

Although Novartis flu vaccines was on the sideline it just happened to be one of the largest flu vaccine companies in the world. GlaxoSmithKline was unable to buy the Novartis flu operation with the other Novartis vaccine operations because GKS was already a major player in global flu vaccines.

Accordingly, the Novartis flu operation was in no man’s land and clearly the most logical buyer was CSL which ranked behind the majors.

Strangely, a similar situation arose ten years earlier when the Aventis plasma operation came on the market when the Aventis group was merging with Sanofi.

In 2004 no one apart from CSL saw much value in the depressed Aventis plasma business and CSL was able to pick up Aventis plasma for a song. It almost recovered its costs with the rise in the value of plasma products. But in the process CSL was able to merge its Australian, Swiss and US operations to become one of two major global players in the high growth global plasma business. CSL became global in plasma for a song.

In flu, CSL has a substantial Australian vaccine business but was finding it difficult to export the vaccine against the two majors -- GlaxoSmithKline and Sanofi -- and of course it was Sanofi that had taken Aventis in 2004 but did not want plasma.

Sanofi has been expanding its flu vaccines in Australia against CSL. Globally Sanofi will now have two rivals -- CSL and GlaxoSmithKline.

Like Aventis plasma ten years ago, the Novartis flu business was losing money. Novartis was in the process of upgrading its plants which was necessary to meet standards of modern technology and to produce a flu vaccine that could cope with four different flu strains.

The previous vaccines could only handle three strains. CSL has announced that it is upgrading its Australian operation to produce a vaccine that will cope with four strains of flu. But now, with the relatively inexpensive acquisition of Novartis flu vaccine company, CSL is a global player in flu as it is in plasma.

Governments are very conscious of the dangers of flu pandemics and want to deal with the vaccine producers that have the capacity to produce a large amount of vaccine quickly if a pandemic arises. CSL was in that position in Australia but not in that position globally. Now it is, and is able to compete on an international basis.

At the same time it opens that door to widening the vaccine business to compete with Sanofi on a broader playing field. But to be able to achieve a global business twice by buying assets at depressed prices is a unique experience for any Australian company. That is why we might call it the ‘lucky company’ -- although CSL’s CEOs Brian McNamee and now Paul Perreault might argue that they simply made their own luck.