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Watson to Buy Actavis for $5.6 Billion in Generics Deal

Watson Will Buy Generic-Drug Maker Actavis for $5.6 Billion
The headquarters of Actavis Group hf stand in Zug, Switzerland. Source: Actavis via Bloomberg

Watson Pharmaceuticals Inc., maker of the generic version of Lipitor cholesterol pills, agreed to buy closely held drugmaker Actavis Group hf for 4.25 billion euros ($5.6 billion), expanding its reach in Europe and Asia.

The deal will create the third-largest global generic-drug maker with $8 billion anticipated in 2012 revenue, Parsippany, New Jersey-based Watson said today in a statement. Watson will add 5.5 million shares, valued at $330 million, to the deal in 2013 if Actavis hits certain performance milestones this year.

“The transaction itself is commercially compelling, it’s financially compelling, and it expands our team,” Watson Chief Executive Officer Paul Bisaro said today in a conference call. “The combination of all of those things, I think, is going to make an extremely powerful global company.”

Actavis would boost Watson’s presence in central and Eastern Europe, China and India, said Michael Faerm, a Credit Suisse analyst in New York. Actavis said Dec. 21 it’s also developing its own pain medications.

Actavis’s “mix of higher-value, non-commodity products fits Watson’s strategy and enhances this strength,” Faerm said in a March 21 note to clients.

Watson, which makes the authorized copy of Pfizer Inc.’s Lipitor, gained 1.6 percent to close at $69.69 at the close in New York before the deal was announced. The shares rose 19 percent in the past 12 months, compared with an 11 percent return for the S&P 500 Health Care Index.

Sales Growth

Actavis’s sales rose 9 percent last year to almost 1.9 billion euros, spokesman Frank Staud said in a March 22 e-mail. The company, based in Zug, Switzerland, makes generic versions of the attention-deficit treatment Ritalin and the sedative Ambien, among other products. In a Dec. 21 statement, Actavis announced a partnership with QRxPharma Ltd., of North Sydney, Australia, to introduce pain medication MoxDuo IR in the U.S.

The Swiss drugmaker saw MoxDuo as “a flagship product in the company’s growing pain management franchise,” Actavis said. In all, Actavis has about 850 products on the market, according to its website. It makes injectable drugs and creams as well as tablets and capsules.

The companies overlap on about 10 percent of their products, giving Watson access to many new compounds in the deal, said Asthika Goonewardene, a Bloomberg Industries analyst.

Actavis has more than 10,000 employees worldwide, a sales presences in more than 40 countries and about 300 projects in development, Watson said in the statement.

Industry Deals

There have been have been almost 120 generic-drugs takeovers worldwide over the past decade, according to data compiled by Bloomberg. Watson is paying about 14 times earnings before interest, taxes, depreciation and amortization for Actavis, in line with the median that buyers paid in 10 deals over that period, according to data compiled by Bloomberg. Watson reported sales of $4.58 billion last 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.

Actavis Chief Executive Officer Claudio Albrecht said in an interview last June that he was weighing an initial public offering or merger for the company 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.

Bank of America Corp. served as sole financial adviser to Watson, while Latham & Watkins LLP provided legal counsel. Actavis received financial advice from Blackstone Group LP and Deutsche Bank AG, with Clifford Chance LLP acting as legal adviser.

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