As well broadcast Israeli generics company TEVA won the 9-month bidding war for Ratiopharm beating a last minute bid by PFE US. This is positive for Teva and was negative for Pfizer and there has since been several articles in talking up the idea that Pfizer may quickly launch a bid for Stada (SAZ GY) - the third biggest, last sizeable German generics company that might be available for acquisition. This makes stategic sense for Pfizer as they lack a significant European generics present and still haven't adequately prepared for their patents cliff. It also makes economic sense - the two companies are not that disparate and have similar EBITDA margins (see below). However, STADA does have significant debts - 66% debt to market cap, $111m total cash but $1126m outstanding debt. Novartis has also been talked up as a possible acquirer - see below notes on the key players here:

SAZ GY is 23% up on the year so far at a price of EUR 29.8. If a bid is made at the same multiple as Ratiopharm that would be equivocal to 88% increase in market ~ even if you half this to account for the significant debts it still represents significant upside to the stock. Word on the street is Pfizer may make a statement over the weekend.STADA: 80% of its sales in Germany, its second largest market is Russia which has been hit by the declining value of the ruble. Balance sheet not so attractive with €1.1 billion of total debt at the end of the third quarter amounting to 40% of the group’s EV and representing 4.4x trailing Ebitda. Stada has been restructuring and indicated the debt burden had been cut to nearer €900 million at the end of 2009.

GERMANY: German generics market is worth around EUR6.5bn in annual sales – Novartis's Sandoz taking 29% share of revenues, Teva (combined with Ratiopharm) to 18% and Stada in third place with 7%. May be world's second largest generics market but has issues – falling prices, high discounts given by manufactuers to health insurance organizations.

PFIZER: If Pfizer wasn’t willing to pay more than €3 billion for Ratiopharm, as has been reported, it’s hard to see why it would want to pay a higher multiple for Stada, a company that has a smaller market share and arguably labors under even greater problems. Cost savings paramount. However Pfizer does need a new strategy to take it beyond patent cliff (epitomized by loss of Lipitor patent next year) – i.e. generics or emerging markets presence. Stada offers both – has emerging markets presence in eastern Europe and Russia. Also Stada, based on its current share price and debt -- but without any takeover premium -- is worth about €2.7 billion.

The one problem is that Stada is not for sale and Pfizer CEO Kindler may well balk at a hostile transaction in the generics space. Stada also enjoys strong backing from German pharmacists, many of whom are also its shareholders -- an influential group that any potential acquirer will want to keep onside.

NOVARTIS: Teva acquisition of Ratiopharm puts the pressure on Novartis owned Sandoz to defend its leading position in German generic pharmaceuticals. Novartis may therefore have an interest in No.3 local player, Stada. A Novartis tie up with Stada to deal with Teva threat would give it 36% market share which may prove too much for 'notoriously stringent' German cartel office on antitrust grounds. Could perhaps look at Momenta Pharmaceuticals, the generics maker with a strong presence in biosimilars in which it already has a 10% stake.

ACTAVIS: Is viewed as an unlikely bidder for Stada, since its interest in Ratiopharm is specific to that company, reflecting the role of Deutsche Bank in the debt of both groups.

Stada, whose shares have tripled from a low of 10 euros last March following an improved performance, has a market capitalisation of 1.7 billion euros and net debt of 1 billion, implying a sales multiple of around 1.7 times. It has rallied for the past three days on bid spec, up 4.3% since start of the week.