Watson to buy Actavis for at least RM17b
Actavis will add valuable exposure for Watson in developing markets in eastern Europe. — Reuters picNEW YORK, April 26 — Watson Pharmaceuticals Inc said yesterday it agreed to buy Actavis Group for at least €4.25 billion (RM17 billion), in a deal that cements its status as one of the world’s biggest suppliers of generic drugs and expands its international presence. Reuters first reported on March 21 that US-based Watson was close to buying the Swiss drugmaker to help it compete more effectively against rivals Teva Pharmaceutical Industries and the Novartis unit Sandoz.
The generics sector has seen a wave of mergers in recent years as Western governments pressure the industry to provide drugs at the lowest possible price, favouring large players who can produce at the lowest cost.
Under the terms of the agreement, Watson will make an upfront payment of €4.25 billion. Actavis stakeholders also could receive a payment valued at €250 million during negotiations should Actavis achieve certain 2012 performance targets, the company said.
Watson said the deal, which is expected to close in the fourth quarter, would immediately add to earnings and estimated annual cost savings and other synergies of more than US$300 million (RM900 million) within three years. It will also drop its tax rate to about 28 per cent from about 36 per cent.
Watson, whose recent US sales have been fuelled by generic versions of the cholesterol fighter Lipitor, said about 40 per cent of its generic revenue will now come from outside the United States, up from 16 per cent. The deal will also enhance Watson’s business in generic injectible cancer drugs.
“In a single commercially compelling transaction, we more than double Watson’s international access and strengthen our commercial position in key established European markets as well as exciting emerging growth markets, including Central and Eastern Europe and Russia,” Watson Chief Executive Paul Bisaro said in a statement.
Watson shares rose more than five per cent in after-hours trading after the deal was announced. Its shares had already climbed more than 18 per cent since the Reuters report.
“This is a really good deal from a strategic standpoint,” said RBC Capital Markets analyst Shibani Malhotra. “Companies have to be global players to really compete in the generics market going forward.”
Acquisition activity has been in high gear across the healthcare sector. In just the past few days, AstraZeneca agreed to buy Ardea Biosciences for US$1.26 billion, while Illumina Inc and Human Genome Sciences have rebuffed takeover attempts by Roche Holding and GlaxoSmithKline, respectively. And Amylin Pharmaceuticals is seeking a buyer after spurning a bid by Bristol-Myers Squibb.
Earlier yesterday, Amgen Inc agreed to buy Turkish drugmaker Mustafa Nevzat Pharmaceuticals for about US$700 million.
The deal is important also to Deutsche Bank, which was left holding billions of euros of Actavis debt after a leveraged buyout in 2007 by Icelandic tycoon Bjorgolfur Thor Bjorgolfsson.
It comes a day before Deutsche Bank posts first-quarter earnings. Selling down its stake in Actavis will allow Germany’s largest lender to free up a capital buffer that it would otherwise need to set aside to meet tougher bank safety rules.
The acquisition is Bisaro’s biggest splash since he took over at Watson in 2007 after 15 years at rival generic drugmaker Barr Pharmaceuticals. The CEO has been telling Wall Street he was interested in acquisitions to boost the generics business or its branded-drugs unit that specializes in women’s health and urology.
Actavis will add valuable exposure to developing markets in eastern Europe. Fast-growing emerging markets are a key focus for drug companies, as growth stalls in Western countries and pricing pressure increases on off-patent generic medicines.
Watson established a foothold in Europe with its US$1.75 billion purchase of Arrow Group in 2009, and then expanded its European presence last year when it bought Greece-based Specifar Pharmaceuticals for US$562 million.
Watson ranked fourth by global sales in 2011 among generic drugmakers, while Actavis ranked 14th, according to IMS Health, a healthcare information and services company.
Watson said the deal moves it into third place ahead of Mylan Inc, although IMS data still places Watson fourth.
“We expect investors to be really pleased with this deal. But going forward it’s really going to depend on integration and getting things right because this is a very large acquisition for Watson,” said RBC’s Malhotra.
The company already enjoys a good working knowledge of Actavis — which used to be based in Iceland but moved its headquarters to Zug, Switzerland in 2011 — since a former chief executive of the group, Sigurdur Oli Olafsson, is now head of global generics for the US company.
“He knows it (Actavis) well and he will know exactly where to focus,” Malhotra said of Olafsson.
Bank of America Merrill Lynch was financial advisor and Latham & Watkins LLP is acting legal advisor to Watson on the deal, while Blackstone Advisory Partners and Deutsche Bank are acting as financial advisors and Linklaters and Clifford Chance as legal advisors to Actavis.
Watson shares rose to US$73.50 in afterhours trading from their New York Stock Exchange close at US$69.69. — Reuters
