Karo Pharma AB (STO:KARO), a specialty pharmaceutical company, announced on Thursday the acquisition of a product portfolio from the Danish pharmaceutical company LEO Pharma A/S for EUR260m, effective 4 April 2018.

Reportedly, the turnover of the acquired product portfolio was SEK700m in 2017. Half of this turnover came from the Nordics, SEK66m came from the rest of Europe and SEK84m from the rest of the world.

This portfolio includes 10 well established pharmaceuticals primarily within the therapeutic areas of Infection, Cardiovascular and Dermatology. These products are characterised by stable sales and profitability. The gross margin of the acquired product portfolio is 10% higher compared with the current business in Karo Pharma.

According to the company, this acquisition is a pure asset deal leading to lower tax payments via utilisation of historical R&D loss deductions (SEK2.3bn). Also, no personnel or manufacturing sites are included in the deal.

With this acquisition, the organisational costs of Karo Pharma are expected to increase by approximately SEK50m per year. This is primarily linked to a further build-up and size of the marketing organisation. This acquisition is not dependent on any approvals from competition authorities.

Strategically, with this acquisition, the company will strengthen its presence in Scandinavia even further. Karo Pharma will have a leading position in Denmark, Sweden and Norway. In addition, the combined turnover provides a rationale for establishing an organisation in Finland.

Karo Pharma will finance this acquisition with a combination of new loans, which Swedbank and SEB have committed to finance and via a rights issue to existing shareholders. This rights issue is fully secured via undertaking to subscribe and guarantees from existing shareholders in the company and is expected to provide Karo Pharma with SEK1.3bn, before the costs for the rights issue.

Reportedly, the chairman of the company's board of directors, Anders Lönner and board members Per-Anders Johansson and Håkan Åström, who together have approximately 11.2% of the capital and votes in the company, have committed themselves to sign up for their respective pro rata shares in the rights issue. The remaining part is guaranteed by Anders Lönner, who will be compensated with 2.5% of the guaranteed amount. The company has performed a competitive benchmarking for this compensation.

This rights issue will be made during the second quarter of this year subject to approval by the General Meeting.

Completion of this transaction is not subject to any issue of shares.

(EUR1.00=SEK10.12)