Watson Pharmaceuticals Inc. (WPI) recently announced its plans to acquire Iceland-based Actavis Group for an upfront payment of EUR4.25 billion.
As part of the acquisition agreement, Actavis shareholders can receive up to 5.5 million shares of Watson Pharma in 2013, on the achievement of certain pre-negotiated performance targets in 2012. The companies expect the transaction to close in the fourth quarter of 2012.
We note that this acquisition will make Watson Pharma the third largest global generics company. Additionally, the takeover will more than double the company’s commercial position in key European markets as well as emerging markets, including Central and Eastern Europe and Russia.
Actavis currently markets 1,000 products in more than 40 countries worldwide. Moreover, the company has about 300 projects in its pipeline and recorded revenues of $2.5 billion in 2011.
Watson Pharma anticipates to record pro-forma revenue of about $8 billion in 2012. Additionally, the company expects the transaction to be immediately accretive to non-GAAP earnings before synergies. More than $300 million of annual synergies is expected to be achieved within three years after the closure of the deal. The synergies will be mostly cost synergies consisting of selling, general and administrative (SG&A) and research and development (R&D) expenses and corporate costs.
This acquisition will help increase Watson Pharma’s international markets generic revenues to 40% from 16% recorded at the end of 2011. Further, the combined company will have 45 first-to-files and 30 marketing exclusivities in the US.
Just four months into 2012, Watson Pharma has already announced two acquisitions. In January, the company announced the acquisition of Australia-based Ascent Pharmahealth Ltd. for AU$375 million (about US$393 million) in cash. Ascent Pharmahealth is the Australian and Southeast Asian generic pharmaceutical wing of Strides Arcolab Ltd. The transaction, which was signed and closed immediately, is expected to be accretive to 2012 non-GAAP earnings.
Our Take
We currently have a Neutral recommendation on Watson Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We believe that these deals are in line with Watson Pharma’s plan to pursue acquisitions and enter into agreements in order to drive growth.
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