By Mia Shanley
STOCKHOLM (Reuters) - Shares in drug maker Meda AB were halted on Friday following a media report that Mylan Inc is looking to acquire its smaller Swedish rival in a move that would create a $23 billion (13.8 billion pounds) company.
Meda's chairman confirmed to Swedish news agency Direkt on Friday that the company had had initial contact with Mylan and said it would make an announcement later in the day on Friday.
Mylan, which has already said it wants to make a big acquisition this year, is likely to pay a "significant" premium to Meda's stock market value for the firm, the Financial Times newspaper quoted a source familiar with the matter as saying.
Meda's market valuation stood at 29.5 billion Swedish krona (2.7 billion pounds) at the end of trading on Thursday, while Mylan's market value was $18.5 billion.
Meda's net debt stood at 15 billion Swedish crowns at the end of last year.
No one at the company, which makes specialty products, over-the-counter drugs and branded generics, was immediately available for comment.
A year ago India's Sun Pharmaceutical Industries Ltd held talks to buy Meda for between $5 billion and $6 billion in a bid to boost its generics business in developed markets, sources with knowledge of the matter said at the time.
Analysts in Mumbai said they doubted Sun would be interested in buying Meda now, since the talks last year foundered mainly on valuation and Meda's stock price has risen since its $4 billion market valuation at the time.
"Sun has not done any expensive acquisitions. It doesn't look like a valuation number that Sun Pharma is generally comfortable with," said Aditya Khemka of Ambit Capital.
A Sun Pharma spokesman declined to comment.
The generic drugs sector has seen a wave of merger deals recently as companies seek to revive growth in a tough market, having had a good run in the past decade by selling popular copycat versions of blockbuster medicines when they come off patent.
Times have got harder as the number of patent expirations dwindles, putting growth and profit margins under pressure, with mergers seen as one way to improve efficiencies.
Recent deals in the sector have led to savings of about 8 percent of sales, analysts estimate and Mylan said in February it was open to looking at makers of branded drugs and deals outside of the United States to add to future earnings.
The Pennsylvania-based firm has appointed advisers to help it put together a deal for Meda, people familiar with the matter told the FT. (http://link.reuters.com/veb38v)
Last year, Mylan bought Agila, a unit of India's Strides Arcolab Ltd , for $1.6 billion to expand its presence in the fast-growing generic injectable drugs market, and the U.S. company has said it is looking for further deals.
Chief Executive Heather Bresch told analysts in February the company planned a major transaction this year that would add to future earnings.
Mylan's Nasdaq-listed shares closed down about 2 percent at $49.86 on Thursday.
(Additional reporting by Sven Nordenstam in Stockholm, Ben Hirschler in London, Zeba Siddiqui in Mumbai; Editing by David Holmes, Greg Mahlich)