CSL buys flu vaccine maker

CSL is buying Novartis' influenza vaccine business for US$275m. Once it's combined with CSL's vaccine division, bioCSL, the combined operations will 'create the number two global player in the US$4 billion global influenza vaccine industry, with manufacturing plants in the US, UK, Germany and Australia, a diversified product portfolio and strong pre-pandemic and pandemic franchises in its major centres of operation.'

Despite sales of US$527m for the year to December 31, Novartis produced an operating loss of US$138m. Restructuring costs are estimated to be around US$100m; however, CSL expects to save up to US$75m a year by cutting duplicated administration and research costs. Sales of the combined business are expected to approach US$1bn a year by 2020.

Based purely on the numbers the deal doesn't look that attractive, particularly as CSL's strength is blood products. Demand for flu vaccine is also seasonal and volatile and developing new vaccines can be very difficult. However, given the company's track record of successful acquisitions, including its largest division, CSL Behring, and the strong economies of scale associated with vaccine manufacturing, we think management has a good chance at turning the business around. It's not a huge investment but it's noteworthy as chief executive Paul Perreault's first major acquisition since taking over from Brian McNamee. 

The deal is expected to be finalised by early next year. CSL will pay in cash and won't have trouble doing so, with more than $600m sitting on the balance sheet as of June 30. The stock is up slightly since CSL's price guide increased from 2 Sep 14 (Hold – $74.30) and we continue to recommend you HOLD.