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Executive Summary

SMITHKLINE BECKMAN PAYING $160 MIL. TO ADD INTERNATL. HYDRON to the Allergan solutions business, via the acquisition of Natl. Patent's 90% owned subsidiary. Under the terms of the proposed sale, SmithKline will pay in cash almost four times Hydron's 1983 sales of $41.6 mil., a Sept. 13 release from the two firms states. Natl. Patent will receive about $140 mil. for its majority stake in the business, as well as royalties on Hydron sales for the years 1986 to 1990, Natl. Patent said. In addition, SmithKline will pay $18 for each of Hydron's 1.12 mil. shares outstanding. The deal is subject to a definitive agreement, approval by both boards, Hydron shareholders approval, and expiration of the Hart-Scott-Rodino Act waiting period. Hydron netted about $4.4 mil. on its 1983 revenues of $41.6 mil., Natl. Patent said. For the first half of 1984, sales climbed 29% to $25.2 mil. Natl. Patent projects a 40-50% gain in both sales and earnings for the current year. Allergan turned in revenues of about $202 mil. last year, a gain of 17%; for the first half of 1984, revenues added 16% to $112.6 mil., according to the release. The acquisition backs Allergan's number one position in the U.S. solutions market with a 10% share of the lens side, the two companies say. Hydron's products include the Hydron Spincast Lens; the Zero 4 and Zero 6 lines of soft lenses; the Zero T cast molded toric lens; the HYPERM oxygen permeable lens; and its recently approved X-70 extended wear lens. The firm "is the only U.S. company" with FDA approval for all three of the existing methods of manufacturing soft contact lenses -- lathing, cast molding and spincasting, Natl. Patent says in its 1983 annual report. Hydron has "no position" in solutions, the firm said. Further down the line, Hydron is working on a collagen-based, 90% water lens, which is still in clinical testing. The firm has filed for FDA marketing approval for a number of lenses, including extended wear, and also is developing a bifocal lens, Natl. Patent indicated. Hydron is not yet involved in intraocular lenses, the firm said. About 40% of Hydron's sales last year stemmed from overseas sales, the release notes. The company has a strong position in "most English speaking countries," the spokesman said, with leading market positions in the United Kingdom, Australia and Canada. The firm also has begun to stake out a niche in Japan, where it began a big market push this summer; those sales are expected to have a positive impact on bottom line by 1985, the firm maintains. The fit is "logical" for Allergan, SmithKline said, given that company's existing strength in solutions. When Nestle almost bought CooperVision earlier this summer, it pointed out the potential vulnerability of Allergan to combined solution/lens businesses. Vevlon is already consolidated in that area. The agreement culminates a 12-year relationship between Allergan and Natl. Patent, which predated Allergan's acquisition by SmithKline. The two businesses currently hold "a number" of ongoing licensing and marketing agreements, including one for Allergan's preservative-free Lens Plus saline solution, developed by Hydron. Allergan also uses Hydron polymers in certain optical solutions, SmithKline said. Hydron's senior management will move with the company, "at least through the transition," according to Natl. Patent and SmithKline. Hydron Exec VP Martin Pollack will report to SmithKline's Eye and Skin Care Group President Gavin Herbert. Hydron brings Allergan about 1,200 employees. SmithKline is the latest would-be buyer in a recent round of ophthalmic acquisition activity. Nestle tried to forge a half bil. dollar force in the eye care marketplace with its attempted acquisition of CooperVision, subsequently blocked by the Federal Trade Commission on antitrust grounds. Over the summer, Cooper Labs picked up about 11.2% of Frigitronics' common, and seemed poised for a hostile takeover attempt. The company announced Sept. 14 that it had divested its Frigitronics shares.

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