Watson Pharmaceuticals Inc. is in talks to buy Actavis Group hf, a Swiss maker of generic drugs, for as much as 5.5 billion euros ($7.3 billion), a person with knowledge of the matter said.
Watson made an unsolicited bid to closely held Actavis, said the person, who declined to be identified because the discussions are confidential. There are no other suitors at the moment and a deal may be weeks away, the person said. Watson may pay 4.5 billion euros to 5.5 billion euros, the person said. Its shares jumped the most in 3 1/2 years on the news.
Watson, which makes the authorized copy of Pfizer Inc.’s cholesterol pill Lipitor, would reap “significant synergies” in the U.S. from an Actavis acquisition and boost its presence in Europe, said Chris Schott, a JPMorgan Chase & Co. analyst, in a note to clients.
“While we need additional financial details of the potential transaction, we believe this combination has a strong strategic rationale and would give Watson the scale it needs to compete globally,” Schott said. He maintained his overweight rating on the stock, meaning the company will outperform the average of its peers during the next six to 12 months.
Watson Chief Executive Officer Paul Bisaro said in January the Parsippany, New Jersey-based company was interested in buying either a generic or brand-name drugmaker. “Our appetite for a larger transaction, it’s there,” Bisaro said at the JPMorgan Chase & Co. health-care conference in San Francisco.
Bisaro said he’s also looking to expand the company’s international reach as well as its portfolio of brand-name drugs.
Charlie Mayr, a Watson spokesman, said the company doesn’t comment on speculation. Frank Staud, a spokesman for Zug-based Actavis, also declined to comment.
Watson climbed 8.8 percent to $63.69 at the close in New York after earlier gaining as much as 10.1 percent, its biggest one-day increase since October 2008. The shares have gained 16 percent in the past year.
Actavis, backed by Deutsche Bank AG, overhauled its business after billionaire owner Bjorgolfur Thor Bjorgolfsson lost money in the financial crisis, leaving the Frankfurt-based lender with as much as 5 billion euros of debt, people familiar with the company said in 2009. The drugmaker refinanced its debt in 2010. Deutsche Bank posted an impairment of 407 million euros related to Actavis in the fourth quarter.
Actavis Chief Executive Officer Claudio Albrecht said in an interview last June that he was weighing taking the company public through an initial public offering or pursuing a merger within three years. Albrecht said he would prefer for Actavis to be about three times its current size. He moved the company from Iceland to Zug in May.
The generic-drug maker has about 850 products on the market and another 350 products under development, according to its website. It makes injectable drugs and creams as well as tablets and capsules.
Actavis had about 1.9 billion euros in sales and more than 300 million euros in earnings before interest, taxes, depreciation and amortization last year, said JPMorgan’s Schott, citing a Reuters report from December. The figures “may be very different today,” given that Actavis is restructuring its business, he said. Watson reported sales of $4.58 billion last year, according to data compiled by Bloomberg.
Watson has “ample capacity” to add debt to finance the deal and might improve its tax rate through a merger with the European company, he said. Its annual cash flow would benefit as well, he said.
“ We see little in the way of antitrust hurdles to completing the deal as the companies’ European businesses have little overlap, and overlap with the companies’ U.S. businesses appears manageable,” Schott said.
Watson’s bid was reported by Reuters earlier today.