By Razak Musah Baba
Teva Pharmaceutical Industries Ltd. on Monday said it would 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.
"This transaction delivers on Teva's strategic objectives in
both generics and specialty," Teva Chief Executive Erez Vigodman
said.
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.
In a separate statement, Teva said that as a result of the
Allergan deal it would drop its bid for rival Mylan NV.
Teva said it expected the acquisition of Allergan Generics to
contribute $2.7 billion in earnings before tax 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.
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 on the possible deal 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.
Write to Razak Musah Baba at Razak.Baba@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires