Healthcare giant Pfizer Inc. (PFE) Tuesday announced a definitive merger deal to acquire specialty pharmaceutical company King Pharmaceuticals, Inc. (KG) for $14.25 per share or $3.6 billion in cash. The companies target to close the acquisition in late fourth quarter or the first quarter of 2011. The transaction is expected to be accretive to Pfizer's adjusted earnings per share annually from 2011 through 2015, in addition to strengthening its position in the rapidly growing pain relief market and providing additional revenue streams across its existing business units.
Under the deal terms, Pfizer will commence a cash tender offer to purchase all of the outstanding shares of King common stock for $14.25 per share in cash. The completion of the tender offer is subject to Pfizer acquiring sufficient shares to own a majority of the shares of King on a fully-diluted basis. All shares not tendered in the tender offer will be converted into the right to receive $14.25 per share in cash.
Pfizer stated that the deal value represents a premium of approximately 40% to King's closing price as of October 11, and 46% to the one-month average closing price as of the same date. Both companies' boards have approved the transaction.
The transaction is expected to be accretive to Pfizer's adjusted earnings per share annually by about $0.02 annually in 2011 and 2012, and about $0.03 to $0.04 annually from 2013 through 2015. Pfizer also said that the transaction will yield initial cost savings of at least $200 million from operating expenses. Those are expected to be fully realized by 2013-end. Meanwhile, the transaction is not expected to impact Pfizer's financial guidance for 2010. The company also continues to expect to achieve its 2012 financial targets.
While announcing the company's second-quarter results on August 3, Pfizer said that it continues to expect adjusted earnings of $2.10 - $2.20 per share, but at the upper-end of the guidance range. Reported earnings and revenues for the full-year are expected to be in the range of $0.95 - $1.10 per share and $67.0 billion - $69.0 billion, respectively.
For fiscal 2010, analysts polled by Thomson Reuters expect the company to earn $2.22 per share on revenues of $67.83 billion. Analysts' forecast typically excludes one-time items.
For 2012, Pfizer is forecasting adjusted earnings of $2.25-$2.35 per share and reported earnings of $1.58-$1.73 per share. Reported revenues are expected to be between $65.2 billion and $67.7 billion.
According to Pfizer, Bristol, Tennessee-based King's three key businesses are complementary to its businesses. They are also strategically aligned with Pfizer's Primary Care, Established Products and Animal Health business units.
The market for pain relief and management treatments is on a steady growth, with physicians in the U.S. having written approximately 320 million prescriptions to treat pain in 2009. However, the widespread misuse and abuse of prescription pain treatments is a major public health issue. Amid this, King's new formulations of pain treatments designed to discourage misuse and abuse will provide Pfizer with multiple new drug delivery platforms, while providing potential long-term upside.
The transaction will further expand Pfizer's business profile, providing immediate, incremental diversified revenues from King's portfolio. This includes King's prescription pharmaceutical business focused on delivering new formulations of pain treatments designed to discourage common methods of misuse and abuse, the Meridian auto- injector business for emergency drug delivery, and an animal health business that offers several feed additive products for a wide range of species.
King also develops and manufactures auto-injector EpiPen and is a long-term, critical supplier to the U.S. Department of Defense. In addition, the combination will allow Pfizer to create a broad portfolio for pain relief and management in the biopharmaceutical industry, offering both currently marketed opioid and non-opioid products, as well as a pipeline under various clinical development stages. Pfizer's current treatments for pain include Lyrica and Celebrex and the merger with King will bring Avinza, the Flector Patch and the recently launched Embeda.
Commenting on the acquisition, Jeffrey Kindler, Pfizer's chairman and chief executive officer, stated, "…the revenue generated by King's portfolio will further diversify Pfizer's business, while at the same time contributing to steady earnings growth and shareholder value."
J.P. Morgan Securities LLC was the financial advisor for Pfizer in the transaction. Cadwalader, Wickersham & Taft LLP was the company's legal advisor. Credit Suisse served as King's financial advisor, and Covington & Burling LLP provided legal advice.
PFE is trading at $17.40, up $0.03 or 0.17%, on a volume of 4.51 million shares.
On the NYSE, KG shares climbed 39.51% or $4.01 and is trading at $14.16.
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