Akorn Takeover Talk Unsurprising

We've considered Akorn to be a likely takeover target thanks to the firm's focus on more complex generic drug products, which creates higher barriers to entry and therefore more price stability than seen in more conventional segments of the generic market. Fresenius' generic injectable drug manufacturing operations likely create manufacturing cost synergies and improved scale from combining these two firms. Additionally, Akorn enhances Fresenius' U.S. market product portfolio and exposure, similar to the firm's acquisition of injectable drug manufacturer APP in 2008.

Although we consider the generic drug industry to be a mostly commoditized market with no pricing power, the incremental advantages of combining these two firms would likely improve Fresenius' generic manufacturing competitive position and would support the firm's overall narrow economic moat rating, in our view. For the time being, we're leaving our moat ratings and fair value estimates in place until further details emerge.

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