Mylan Laboratories to Acquire Generics Business of Merck KGaA (1)

PITTSBURGH, May 13 /PRNewswire/ --

-- Combination Creates a World Class Global Generics Leader -

-- Significant Scale and Breadth Will Drive Major Operating Efficiencies -

-- Highly Complementary Transaction Further Strengthens Mylan's Product Portfolio -

-- Accelerates Mylan's Revenue and Earnings Growth -

-- Anticipated to be Cash EPS(1) Neutral in 2nd Full Year -

Mylan Laboratories Inc. (NYSE: MYL) and Merck KGaA today announced the signing of a definitive agreement under which Mylan will acquire Merck's generics business ("Merck Generics") for EUR 4.9 billion (US$6.7 billion) in an all-cash transaction. The combination of Mylan and Merck Generics will create a vertically and horizontally integrated generics and specialty pharmaceuticals leader with a diversified revenue base and a global footprint. On a pro forma basis, for calendar 2006, the combined company would have had revenues of approximately US$4.2 billion, EBITDA of approximately US$1.0 billion and approximately 10,000 employees, immediately making it among the top tier of global generic companies, with a significant presence in all of the top five global generics markets.

In addition to retaining Hank Klakurka, currently President and CEO of Merck Generics, Mylan has executed long-term employment agreements with members of Merck Generics' senior management team, ensuring that senior leadership remains intact. Mylan views the existing management and employees of Merck Generics as key to the success of the combined company.

Robert J. Coury, Mylan's Vice Chairman and Chief Executive Officer, commented: "Mylan's acquisition of Merck Generics would substantially complete the execution on one of its long-term visions: to create a world class global quality generics leader. The fit between our two companies is truly outstanding. Mylan is already a leader in the U.S., the world's largest market, and through Matrix Laboratories controls one of the broadest API platforms in the world. Merck Generics provides us with leading positions in many of the world's other key regions. Together, we will form a powerful, diverse, robust and vertically integrated generics platform.

    
    (1) Cash EPS represents EPS adjusted for amortization expense related to
        intangible assets.

The combination with Merck Generics will significantly extend our range of therapeutic categories and dosage forms, and bring us a number of new, differentiated products and successful franchises."

Merck Generics is a subsidiary of Merck KGaA, a more than 300-year old global chemical and pharmaceutical conglomerate. Merck Generics has sales in more than 90 countries and is the world's number three ranked generics business by 2006 calendar year revenues. It has more than 400 high quality products and 70% of its revenues are generated from countries where it is a top three player. Merck Generics' U.S. specialty pharmaceuticals business, Dey, is focused on respiratory and allergy products and had US$650 million in revenues in 2006. Merck Generics reported sales of EUR 1.8 billion (US$2.45 billion) and EBITDA of EUR 335 million (US$450 million) in 2006. The business employs approximately 5,000 people worldwide.

Hank Klakurka, President and CEO of Merck Generics, said: "My management team and I are extremely excited to be joining the Mylan team. We believe Mylan is the best possible acquirer for our company. The two businesses are an excellent fit in terms of geography and product mix, and together we can offer extremely attractive product baskets across our combined territories. Mylan has established itself as a leader in the U.S. in terms of quality, manufacturing excellence and customer service, and has demonstrated a strong commitment to its employees and the communities in which it operates. My team and I look forward to working with Mylan to build an undisputed world leader in quality generics."

Strategic Rationale

The acquisition offers a unique, compelling opportunity to create a global generics leader with critical mass in most of the important generics markets. The transaction positions Mylan to leverage substantial growth opportunities and maximize operating efficiencies driven by global scale.

    
    -- Leadership and scale in key global regions: The transaction creates
       critical mass by combining Mylan's leading position in the U.S. with
       Merck Generics' broad geographic mix, including leading positions in
       Australia, France, Japan, Portugal, Spain and the U.K. This global
       footprint creates substantial growth opportunities, and reduces the
       risks associated with over-reliance on any one region.
    -- Broad and diversified product portfolio: The new company will be well
       diversified across most therapeutic areas with approximately 560
       products.
    -- Differentiated dosage form expertise: The combined company will have
       manufacturing capabilities in several specialized dosage forms
       including solid orals, patches, controlled-release and high potency
       formulations, antibiotics, sterile liquids, inhalants and creams. Many
       of these dosage forms benefit from barriers to competition and longer
       product growth cycles. Additionally, Merck Generics has a highly
       successful product sourcing and in-licensing strategy that has allowed
       the company to develop critical mass in key differentiated dosages in
       attractive markets.
    -- Vertical integration and API supply: Together, Mylan and Merck
       Generics will benefit from significant savings driven by Matrix's low
       cost, high quality API capacity and the benefits of manufacturing high
       product volumes for multiple markets around the world. In 2007, Mylan
       completed its acquisition of a 71.5% stake in India-based Matrix, the
       second largest API manufacturer globally, with more than 165 APIs in
       the marketplace or under development.

Transaction Details

Under terms of the transaction, which have been unanimously approved by Mylan's Board of Directors, Mylan will acquire 100% of the shares of the various businesses comprising Merck Generics for a cash consideration of EUR 4.9 billion (US$6.7 billion). Mylan has secured fully committed debt financing from Merrill Lynch, Citigroup and Goldman Sachs.

The transaction is anticipated to be dilutive to full-year cash EPS(1) in year one, breakeven in year two, and significantly accretive thereafter based on management's internal projections. The company is committed to reducing its leverage in the near term through the issuance of US$1.5 billion to US$2.0 billion of equity and equity-linked securities. The combined company will generate substantial free cash flow that will further enable it to rapidly reduce acquisition-related debt. Reflecting its more leveraged capital structure and focus on growth, Mylan is suspending the dividend on its common stock.

Mylan expects to achieve synergies of approximately US$250 million by the end of year three. The majority of these synergies will result from vertical integration of Merck's API supply by leveraging the Matrix platform, aligning capabilities in research and development, and driving further efficiencies in increased manufacturing volumes of key products across the globe.

Mylan does not anticipate significant reductions in headcount at Mylan, Matrix or Merck Generics in order to achieve these synergies.

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