Generic drug maker, Actavis Inc., is acquiring specialty pharmaceutical company Warner Chilcott in a stock transaction valued at $8.5 billion, creating the third largest U.S., announced the company on Monday. The deal is expected to close by the end of the year.
The combined company, which would be the third largest U.S. specialty pharmaceutical company, is estimated to have an annual revenue of about $11 billion and will focus on diversified core categories of women’s health, gastroenterology, urology and dermatology. Actavis has a mix of generic, branded and biosimilar products, while Warner Chilcott concentrates on branded specialty pharmaceuticals.
[See also: 2013 global pharma earnings to recover]
The two companies’ combined portfolios have strong growth potential with a deep pipeline of development programs, said Paul Bisaro, president and CEO of Parsippany, N.J.-based Actavis in the news release announcing the acquisition. “The combination is commercially and financially compelling, and reshapes the specialty pharmaceutical universe by creating a powerful global competitor,” he said.
The new company arising from the acquisition, Actavis PLC, will be incorporated in Dublin, Ireland, where Warner Chilcott is incorporated. The location will offer “… a favorable tax structure to support future growth,” Bisaro said in the release and in a replay of his conference call available on the company’s website. “The favorable company tax rate is anticipated at close to be approximately 17 percent,” Bisaro said.
The balance sheet and tax structure of the new company will help it compete globally, Bisaro explained in the conference call. Actavis’ current tax rate is higher and has handicapped the company, said Bisaro, as it has tried competing globally against companies with more advantageous tax structures in place. “If we are looking now at assets overseas, further enhancing our pipeline, we now have a vehicle to do that and be competitive with many of the companies that we are competing against for those assets. So, it is the perfect strategy at this time to move,” Bisaro said in the conference call.
Additionally, the combined company is anticipated to have more than $400 million in after-tax operational synergies and related cost reductions, Bisaro said.
In an investment note news release, Zacks.com said that the deal makes strategic and financial sense. “It will provide strong operating cash flow and allow Actavis to de-lever its balance sheet. The tax rate will also be significantly below current levels,” moving to about 17 percent, which is well below the stand-alone Actavis expected effective 2013 tax rate of 27 percent to 29 percent, the release said.
Even though the company will incorporate in Ireland, the management team will remain in New Jersey, Bisaro said.
[See also: 7 ways to improve patient care through pharma]
Upon close of the transaction, Warner Chilcott shareholders are expected to own approximately 23 percent of the new company. Under terms of the agreement, Warner Chilcott shareholders will receive 0.16 shares of the new Actavis for each Warner Chilcott share they own, which equates to a value of $20.08 per Warner Chilcott share. Actavis shareholders will receive one share of the new Actavis for each Actavis share they own upon closing.
While the boards of both companies have unanimously recommended the transaction, it must be approved in a special meeting by shareholders holding a majority of the outstanding Actavis common shares, the Actavis news release said.
[See also: New report offers pharma a blueprint for a bright future]