In a bid to diversify its business into the pet care space,
) inked a deal to buy substantially the entire assets of
privately-held Sergeant's Pet Care Products, Inc. for approximately
$285 million. With this deal, which will expand Perrigo's customer
base, Perrigo expects a tax benefit of about $50 million (net
present value). Perrigo intends to fund the deal from its available
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The acquisition of the assets of Sergeant's, which manufactures
over-the-counter (OTC) companion animal healthcare products, is
expected to be completed in the second quarter of fiscal 2013. The
closure of the all-cash deal is dependant on the satisfaction of
certain closing terms and conditions. We note that the fiscal year
at Perrigo ends on the last Saturday of June every year. Sales at
Sergeant's are forecasted in excess of $140 million for its fiscal
year ending September 30, 2012.
The assets of Sergeant's would be part of Perrigo's Consumer
HealthCare business. The completion of the acquisition would see
Perrigo enter the consistently growing Pet Care industry, currently
valued at $8 billion. Following the closure of the deal, Perrigo's
product portfolio would include good quality, yet affordable OTC
channel flea and tick offerings. The products face limited
competition since the market has high barriers to entry.
The deal is expected to boost Perrigo's adjusted earnings by 20
cents per share in the first full fiscal year following its
closure. Moreover, the deal is projected to boost Perrigo's Return
on Invested Capital in fiscal 2014.
We remind investors that Perrigo has been quite active on the
acquisition front lately to expand its business and drive growth.
In January 2012, Perrigo inked a deal to acquire the assets of
Georgia-based private company CanAm Care, thereby expanding its
presence in the diabetes care market. In July 2011, Perrigo
acquired Paddock Laboratories to expand its generic (Rx
We note that there has been quite a bit of activity in the animal
health industry recently. Close on the heels of Perrigo's decision
to enter the pet care space, the HealthCare unit of
) inked a deal with
Teva Pharmaceutical Industries Limited
) to buy the animal health unit of the latter in the US. Moreover,
in June 2012,
) announced its plans to spin off its animal health division.
We currently have a Neutral recommendation on Perrigo. The stock
carries a Zacks #3 Rank (Hold) in the short run.