Generic drug maker Watson Pharmaceuticals, Inc. (WPI: Quote) agreed Wednesday to acquire privately-held Swiss rival Actavis Group for an upfront payment of 4.25 billion euros or $5.6 billion. Actavis will also receive additional consideration of up to 250 million euros in the form of up to 5.5 million shares of Watson common stock in 2013 upon achievement of certain negotiated 2012 performance targets. Watson expects to close the deal in the fourth quarter of 2012.
"The acquisition of Actavis will create the 3rd largest global generics company, substantially completing Watson's expansion as a leading global generics company. Actavis dramatically enhances our commercial position on a global basis and brings complementary products and capabilities in the United States," Watson's President and CEO Paul Bisaro said in a statement.
The deal with Actavis will see Watson propel itself to the third largest global generic drug maker, with anticipated 2012 pro forma revenue of about $8 billion. The deal will also enable Watson to more than double its international presence and strengthen its commercial position in key established European markets as well as emerging growth markets.
The combined company will have commercial operations in more than 40 countries, and will have 45 First-to-Files and 30 exclusive First-to-Files in the U.S.
Zug-based Actavis was taken private in 2007 by Icelandic tycoon Björgólfur Thor Björgolfsson in a deal that gave the business an enterprise value of 4.8 billion euros. The deal was financed by Deutsche Bank, which in 2008 renegotiated more than 3 billion euros in debt with Actavis and remains its major creditor. Actavis had 2011 revenues of about $2.5 billion.
Bjorgolfsson is the chairman of investment firm Novator and is the largest shareholder in Actavis for over a decade, holding a 78 percent stake in Actavis.
Actavis also has a business nearly as big as Watson's and has a formidable presence in central and eastern Europe as well as Russia. It has around 1000 products on the market and about 300 products under development and pending registration. This will complement Watson's position in established markets including the UK, France and Australia.
The deal will be immediately accretive to adjusted earnings before synergies, and more than 30 percent accretive to 2013 adjusted earnings, with accretion accelerating in 2014 through organic growth. It will also see Watson achieve annual synergies of more than $300 million from the third year.
Additionally, Watson anticipates that the combined company will generate substantial free cash flow, enabling it to pay down debt quickly.
In January, Watson's CEO Bisaro had indicated that Watson is eying a large-scale acquisition as it looks to expand its breadth and become more balanced through acquisitions. He was speaking at the J.P. Morgan Healthcare Conference in San Francisco.
The current deal will boost Watson's presence in Europe after it bought Greece-based Specifar Pharmaceuticals for $562 million last year, its only acquisition in 2011. Earlier, Watson's last major deal came when it acquired generic drugmaker Arrow Group plc for $1.75 billion in 2009.
The deal will also enable Watson to boost its international presence and compete better with larger rivals such as the world's first and second largest generic drug makers, Teva Pharmaceutical Industries Ltd (TEVA) and Mylan Inc (MYL). Swiss drug giant Novartis AG's (NVS) unit Sandoz is currently the third largest.
"The transaction achieves Watson's stated strategic objective of expanding and diversifying our business into a truly global company. Once the transaction is completed, approximately 40% of our generic revenues will come from markets outside of the U.S," Bisaro added.
WPI closed Wednesday's regular trading session at $69.69, up $1.09 or 1.59% on a volume of 3.36 million shares. The stock surged a further $3.67 or 5.27% in after-hours trading. In the past 52-week period, the stock has been trading in a range of $55.00 to $73.35.
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by RTT Staff Writer
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