) recently announced its intention to acquire
Warner Chilcott plc
) in a stock-for-stock transaction worth about $8.5 billion. This
includes the assumption of Warner Chilcott's net debt of $3.4
The successful completion of this deal will lead to the
creation of a leading global specialty pharmaceutical company
with combined annual revenues of about $11 billion. The combined
company will hold the third position in the US specialty
pharmaceutical market with annual revenues of about $3
The deal is expected to close by the end of this year. The two
companies will be combined to form a new company domiciled in
Ireland where Warner Chilcott is currently incorporated.
Warner Chilcott shareholders will receive 0.160 shares of the
new company for each share owned by them. This comes to about
$20.08 per Warner Chilcott share, representing a 34% premium to
Warner Chilcott's closing share price ($15.01) on May 9, 2013, a
day before Warner Chilcott disclosed its merger plans with
Meanwhile, Actavis shareholders will receive one share in the
new company for each Actavis share owned by them. Once the deal
closes, about 23% of the new company will be owned by Warner
Chilcott shareholders. The new company, to be called Actavis
plc, will continue to trade on the New York Stock Exchange
under the ticker symbol ACT.
The Warner Chilcott acquisition will help strengthen Actavis'
position in the women's health (eight products) and urology (six
marketed products) segments. The company will also gain a
presence in the gastroenterology (two marketed products) and
dermatology (one marketed product and a new product launch slated
for Jul 2013) markets.
Moreover, Actavis will gain a pipeline of 25 candidates
include 15 targeting the women's health market.
Once the new company is formed, specialty brand sales are
expected to account for 25% of 2013 sales, up from the current 7%
contribution (stand-alone Actavis). The deal is expected to be
accretive to Actavis' 2014 earnings per share by more than 30%.
The company expects to achieve post-tax operational synergies and
related cost reductions and tax savings of more than $400
million. While a major part of these savings will be realized
next year, the full effect will be achieved in 2015.
The combined company's tax rate is expected to be about 17%,
well below stand-alone Actavis' expected effective 2013 tax rate
of 27% - 29%.
We are positive on this deal which makes strategic and
financial sense. The deal is expected to be immediately
accretive. Moreover, 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.
Currently, both Actavis and Warner Chilcott are Zacks Rank #3
(Hold) stocks. Shares of both companies reacted positively to the
Companies that currently look well-positioned include
Salix Pharmaceuticals, Ltd.
). Both are Zacks Rank #1 (Strong Buy) stocks.
ACTAVIS INC (ACT): Free Stock Analysis Report
SALIX PHARM-LTD (SLXP): Free Stock Analysis
SANTARUS INC (SNTS): Free Stock Analysis
WARNER CHIL PLC (WCRX): Free Stock Analysis
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