By Jonathan D. Rockoff, Dana Mattioli and Liz Hoffman
Teva Pharmaceutical Industries Ltd. on Monday agreed to buy
Allergan PLC's generics unit for $40.5 billion in cash and stock,
in a deal that will vault the Israeli company into the top ranks of
global drug makers.
Teva said Allergan would receive $33.75 billion in cash and Teva
shares valued at $6.75 billion, giving it a 10% stake in Teva.
The deal, the latest in a wave of consolidation in the drug
industry in recent years, combines Teva, the world's largest
generic-drug company by sales, with the third-largest competitor in
the market.
The acquisition will give Teva increased scale in the hotly
competitive generic-drug market, and an opportunity to pursue
further cost reductions that could help it cope with the end of a
wave of big patent expirations.
"What we are doing here will enable Teva to be one of the
winners of the ever-changing pharmaceutical industry," Teva Chief
Executive Erez Vigodman said in an interview. He expects Teva will
be able to divest the products needed to satisfy any government
concerns about antitrust.
Teva shares rose 13% in premarket trading.
Mr. Vigodman added that Teva would drop its pursuit of rival
Mylan NV in wake of its agreement to buy Allergan's generic-drugs
business. "We believe we have an even greater opportunity to create
value for shareholders from" the Allergan transaction, he said.
Mylan, in a separate statement, congratulated Teva, said its
focus remains unchanged and reaffirmed its commitment to acquiring
rival Perrigo Co. So far, Perrigo has rebuffed Mylan's takeover
attempts.
Mylan shares fell 14% premarket, while Perrigo gained 4.6%.
For Allergan, the Teva deal provides it with cash to pay down
debt and allows the company to focus more on lucrative brand-name
drugs. Actavis was renamed Allergan earlier this year, after doing
$100 billion in deals last year that gave it brand-name drugs,
notably wrinkle fighter Botox.
Those deals had swollen Allergan's debt levels, and the company
has said it is committed to reducing its debt levels.
Allergan shares added 8.7%.
Teva said it expected the acquisition of Allergan Generics to
contribute $2.7 billion in earnings before interest, taxes,
depreciation and amortization, or Ebitda, in 2016, excluding
synergies. It expects to achieve cost synergies and tax savings of
approximately $1.4 billion annually, largely achievable by the
third anniversary of the closing of the transaction.
Allergan's 1,000 low-price products include branded generic
drugs, over-the-counter medicines and generic versions of
well-known pharmaceuticals such as the OxyContin pain treatment and
Concerta, which treats
attention-deficit-hyperactivity-disorder.
The deal is expected to attract antitrust scrutiny from
regulators. Teva may need to sell off products with about $500
million in yearly sales to win approval, Evercore ISI analyst Umer
Raffat estimates.
Teva said the transaction was unanimously approved by the boards
of both companies and is expected to close in the first quarter of
2016.
Midsize companies such as Teva have largely driven the breakneck
pace of consolidation in the drug industry in recent years--part of
a broader boom in mergers and acquisitions--as they take advantage
of cheap debt and in some cases low tax rates secured by relocating
overseas, while drawing on the approval of investors who have
driven their shares higher. Meanwhile, bigger, more-established
rivals have largely been on the sidelines of major deal making.
Last year Teva, which had a market value of $60 billion before
The Wall Street Journal reported Teva's talks with Allergan on
Saturday, had $9.1 billion in generic-drug sales, according to
EvaluatePharma, about 12% of the world market. The company said it
already accounts for one in six drug prescriptions in the U.S. But
much of its business is in no-name generic medicines sold at lower
prices. Nearly half of Teva's $20.3 billion in sales last year were
from the off-patent generic copies of drugs.
By adding Allergan's business, which reported $6.6 billion in
sales last year, Teva would have revenue significantly greater than
that of better-known, branded-drug companies such as Cialis maker
Eli Lilly & Co., which reported $19.6 billion in sales last
year.
The deal could give the combined company a market value
exceeding that of Lilly, which stood at $94 billion on Friday.
Dublin-based Allergan became one of the top 10 drug companies by
sales this year when Actavis bought the maker of wrinkle treatment
Botox for nearly $70 billion, and renamed itself. The Teva deal
allows Allergan to sharpen its focus on its branded pharmaceutical
business.
"We will have the potential to add scale in existing therapeutic
areas, expand into new therapeutic areas and geographies and
evaluate strategic transformational deals as we continue to build
on our position as the most dynamic branded growth pharma company,"
Allergan CEO Brent Saunders said.
In a sign of its continuing ambition, Allergan announced a deal
on Sunday, saying it will pay $560 million upfront for Naurex Inc.
and its antidepressant-drug candidate.
Razak Musah Baba contributed to this article.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com, Dana
Mattioli at dana.mattioli@wsj.com and Liz Hoffman at
liz.hoffman@wsj.com
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