TEL AVIV – Teva Pharmaceutical Industries has agreed to buy Allergan Plc\’s generic drugs business for US$40.5 billion in a cash and stock deal which will turn the Israeli company into one of the world\’s largest pharmaceutical firms.
The deal, the biggest in Israel\’s corporate history, prompted Teva to drop its US$40-billion hostile bid for Mylan , which had hit a snag when a Dutch foundation from the target bought temporary control of half the organization in an attempt to block the takeover.
It will also allow Dublin-based Allergan, the third-largest generic drugmaker in the United States, to focus on branded drugs and pay down its debt.
\”Allergan\’s clients are more high end (than Mylan). It is a more interesting business … a profitable business and it is well managed,\” said Gilad Alper, an analyst at brokerage Excellence Nessuah, noting a \”friendly deal\” is preferable to a hostile one.
Allergan\’s generic clients are seen as a better fit than Mylan because it will improve Teva\’s distribution channels and since Allergan is strong in so-called biosimilar drugs, in addition to injectables, and has a name in India.
Pressure continues to be growing on Teva, already the world\’s biggest generic drugmaker, to find new revenue sources to combat the beginning of competition this season for its multiple sclerosis drug Copaxone. Copaxone makes up about about half of Teva\’s profit.
The acquisition is the latest within an unprecedented wave of healthcare deals because the start of 2014, stretching from large drugmakers buying up smaller rivals, to consolidation among makers of generic medicines, to tie-ups between insurers.
Global healthcare M&A so far this year reached US$398.5 billion as of July 23, up 80 % on a last year, according to Thomson Reuters data.
Teva Pharmaceutical Industries Ltd makes $40-billion offer for Mylan in pharma\’s biggest bid this yearMylan purports to buy rival drug maker Perrigo Co for $28.9 billion
Economies of scale are particularly significant in generics, given the relatively low margins involved and also the highly competitive nature from the market.
Teva shares, which had been weighed down through the Mylan uncertainty, jumped 10 % in Tel Aviv and were up 11.8 per cent at US$58 in premarket trading in New York. Mylan shares slid 12 percent to US$58 in pre-market trading.
\”There is just one entity that would stand to lose (from Teva-Allergan), which is Mylan,\” said Cowen and Co analyst Ken Cacciatore, who believes Teva\’s shares will reach US$100.
Mylan said hello would continue its purchase of Perrigo.
Teva will pay US$33.75 billion in cash and US$6.75 billion in shares, representing a 10 per cent stake within the Israel-based company, Teva said in a statement. The deal is expected to shut in the first quarter of 2016.
Though the Teva-Mylan feud has hogged the spotlight since April, Allergan\’ generics business may have been Teva\’s first choice. Teva CEO Erez Vigodman is considered to have approached Allergan last year, which was called Actavis in front of you March merger.
In June 2014, just a few months after joining the organization, Vigodman hired Sigurdur Olafsson, former head of Actavis\’s generic drug business, to fill a similar role at Teva.
\”My sense always was that Mylan was Teva\’s Plan B,\” said Benny Landa, an industrialist who led an investor bid this past year to change Teva\’s board, calling the offer \”brilliant.\”
Landa, who initially questioned the logic of Teva\’s bid for Mylan, said he believes Allergan\’s business was \”culturally a much better fit, as evidenced by the behaviour and the style of Mylan\’s leadership,\” said Landa.
Mylan Executive Chairman Robert Coury repeatedly rejected Teva\’s offer, saying the combination of Teva and Mylan was \”without sound industrial logic or cultural fit.\”
Vigodman said the combined companies may have proforma revenue of US$26 billion and earnings before interest, tax, depreciation and amortization of US$9.5 billion in 2016.
\”Our respective portfolios of generic medicines and applications are highly complementary,\” he explained. \”This acquisition reinforces our strategy, accelerates growth and diversifies revenues both by product and geographically, supporting our start up business model.\”
Teva, that will gain a portfolio in excess of 1,000 products, said hello believes buying will bring a double-digit boost to adjusted earnings per be part of 2016 and a a lot more than 20 percent benefit in a long time two and three following the close from the deal.
It expects cost synergies and tax savings of US$1.4 billion annually through the third anniversary, from efficiencies in operations, manufacturing, and purchasers and marketing.
It also expects the acquisition to generate free income of US$6.5 billion in 2016 and increased free income in subsequent years. This means it will be in a position to pursue acquisitions to expand its portfolio in both speciality pharmaceuticals and generics.
In preliminary second-quarter results, Teva raised its adjusted 2015 earnings per share estimate to US$5.15-$5.40 from US$5.05-$5.35.
? Thomson Reuters 2015