Actavis to Buy Warner Chilcott in Women’s Health Effort
Actavis Inc. (ACT), the largest U.S. maker of generic drugs by market value, agreed to acquire Warner Chilcott Plc for about $5 billion excluding net debt in a deal to expand in women’s health and urology.
Warner Chilcott investors will receive 0.16 shares of new Actavis stock for each Warner Chilcott share they own, Parsippany, New Jersey-based Actavis said today in a statement. The agreement currently values each Warner Chilcott share at $20.08, a 4.5 percent premium over the stock’s closing price on May 17. Including Warner Chilcott’s more than $3 billion in net debt, the total value of the acquisition is about $8.5 billion.
The combined company will have $11 billion in annual revenue as Actavis also adds gastroenterology and dermatology businesses, according to today’s statement. The purchase also may provide Actavis with a $4-a-share tax benefit because Warner Chilcott is incorporated in Ireland, Leerink Swann LLC said. Actavis rejected an offer from Mylan Inc. for $15 billion, deciding instead to pursue talks to take over Warner Chilcott, said people familiar with the matter, Bloomberg News reported on May 14.
“This is a logical transaction in a lot of respects,” said David Amsellem, an analyst at Piper Jaffray & Co., in a telephone interview. “There’s clear overlapping business so the cost savings are really compelling. For Actavis, it’s a fair price.”
Warner Chilcott rose 2 percent to $19.60 at the close in New York. The stock surged 20 percent on May 10 after Bloomberg News revealed the two companies were in early talks. Actavis gained 1.3 percent to $127.15.
Actavis is paying about 5.8 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the median of about 13 times Ebitda in a survey of almost 40 similar deals, the data show.
“This really is the culmination of the Actavis strategy of building a global specialty pharmaceuticals company,” Chief Executive Officer Paul Bisaro said on a conference call today.
The acquisition also makes Actavis the premiere women’s health company, Chief Financial Officer Todd Joyce said on the call. “When you become the premier company in any therapeutic category, opportunities present themselves because people want to deal with the company with the depth and breadth in that category.”
Mylan, based in Canonsburg, Pennsylvania, made its offer in a letter to Actavis on May 7 that emphasized the cost savings that two large generic drugmakers could get by merging, one of the people familiar said at the time. The Mylan offer valued Actavis at $120 a share said the people, who asked not to be named because the discussions were private.
Actavis rejected the offer, in which Mylan was offering more stock than cash, a couple of days later, the person said.
A possible Actavis takeover is “the most significant risk to consummation of” the acquisition of Warner Chilcott, Liav Abraham, an analyst at Citigroup Global markets, wrote in a note today.
It is unlikely that Mylan would still be interested, said David Maris, an analyst with BMO Capital Markets who said he never gave much credence to a possible Mylan-Actavis deal.
“Mylan is severely limited given their debt load,” Maris said. Mylan also doesn’t have a deep management bench or the ability to manage a much larger organization, he said.
A Mylan spokeswoman, Nina Devlin, in an e-mail, said “I can’t comment on rumors or speculation.”
More than a year ago, Dublin-based Warner Chilcott disclosed that it was in discussions with suitors and conducting a strategic review. Actavis was among those that considered an offer for the company during that process, said another person.
In August, Warner Chilcott revealed that the talks had ended and that it would renew a share-buyback program and pay a special dividend, saying the measures would be more rewarding for shareholders.
Actavis makes generic versions of birth-control pill Seasonique and pain medication Percocet. Warner Chilcott’s products include oral contraceptives such as Ovcon 35 and Estrostep FE, as well as the acne treatment Doryx.
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