* Deal to immediately add to Watson earnings
* Sees more than $300 mln in synergies within three years
* About 40 pct of generic revenue to come outside U.S. with
deal
* Shares rise 5.5 percent
By Lewis Krauskopf and Bill Berkrot
April 25 (Reuters) – Watson Pharmaceuticals Inc said
on Wednesday it agreed to buy Actavis Group for at least 4.25
billion euros ($5.60 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 U.S.-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, favoring 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 euros. Actavis stakeholders also
could receive a payment valued at 250 million euros 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 $300
million within three years. It will also drop its tax rate to
about 28 percent from about 36 percent.
About 40 percent of Watson’s generic revenue will come from
outside the United States with Actavis, up from 16 percent.
“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 5 percent in after-hours
trading after the deal was announced. Its shares had already
climbed more than 18 percent 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.”
GOOD FOR DEUTSCHE BANK
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 $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 $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 U.S. 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 $73.50 in after hours trading from
their New York Stock Exchange close at $69.69.
