Prestige Brands Holdings, Inc.
) shares shot up 18.13% after the company announced that it
entered into an agreement to acquire Insight Pharmaceuticals
Corp. for $750 million in cash. The deal is expected to close by
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As per the terms of the agreement, Prestige Brands stands to gain
tax attributes with a present value of approximately $100
million. Thus, the effective purchase price will be approximately
The transaction will add Insight Pharma's feminine care and other
over-the-counter (OTC) healthcare products including Monistat
(leading OTC yeast infection treatment brand) to Prestige Brands'
portfolio. The acquisition will expand Prestige Brands' presence
in the feminine care market in the U.S. and Canada. The deal will
be immediately accretive to the company's earnings.
We note that this is the second agreement announced by the
company this month. Earlier, the company revealed that it has
signed a purchase agreement with Australia-based The Hydration
Pharmaceuticals Trust of Victoria to acquire their OTC oral
rehydration brand, Hydralyte. The acquisition is slated to close
by Jun 2014.
The upcoming acquisition of Hydralyte will help Prestige Brands
expand its business in the Austral-Asia region. With Hydralyte's
leading-OTC-brand status for oral rehydration following diarrhea,
vomiting, fever, heat and other ailments in Australia and New
Zealand, the addition of Hydralyte to Prestige Brands' portfolio
will be immediately accretive to its earnings.
Prestige Brands has been strengthening its OTC portfolio for
sometime now. We note that the Insight Pharma deal is the sixth
among similar acquisitions in the last five years. Last year, the
company acquired Care Pharmaceuticals to boost its OTC healthcare
On the back of these acquisitions, pro forma earnings are
expected in the range of $1.90 to $2.00 per share in year one,
which represents a significant increase from adjusted earnings of
$1.50 per share recorded in fiscal 2013. Currently, for fiscal
2014, the Zacks Consensus Estimate stands at $1.51.
We expect to see more merger and acquisition activity at Prestige
Brands, both in the feminine care category and in other segments.
Prestige Brands carries a Zacks Rank #3 (Buy). Better-ranked
stocks in the health care sector include
Summer Infant, Inc.
) each with a Zacks Rank #2 (Buy) and
Salix Pharmaceuticals Ltd.
) carrying a Zacks Rank #1 (Strong Buy).