Teva Pharmaceutical will broaden its global lead in the generics market with the planned $7.46 billion purchase of Barr Pharmaceuticals, considered to be the fourth largest player in this area. This is just the latest example of how the generic sector seems to be following the example of the pharma industry in terms of consolidations.
The acquisition has generated positive reviews on Wall Street for both companies. Teva’s stock rose from $41.05 at yesterday’s close to $45.08, a 9.81% increase. Barr achieved a two-year high of $64.17 in early-morning trading. In fact, with rumors of a takeover first making rounds on Wednesday, Barr’s value soared 42% from Wednesday’s close to today’s open of $61.98.
Teva reports that the buyout will become accretive to GAAP earnings in the fourth quarter after closing, expected late 2008. Also, it will generate at least $300 million in annual cost savings within three years and will continue to provide additional cost savings well beyond 2011, according to the companies.
Teva spent $760 million this year on CoGenesys and Bentley. The company, however, was beat out by Mylan Laboratories in its attempt to pick up Merck Generics. Another major acquisition within this sector came just last month with Daiichi Sankyo offering to shell out $4.6 billion for Ranbaxy.
Even after all these consolidations, Teva remains ahead of the pack. Teva and Barr together logged revenues in 2007 of $11.9 billion with over 500 marketed products: $2.5 billion from Barr and $9.4 billion from Teva. Sandoz, the second largest manufacturer in the generics segment, reported $7.2 billion in sales last year.
Besides the obvious stronghold, the combined entity will have in the generics market, the transaction will also fortify Teva’s specialty pharmaceutical platform. Barr’s women’s health portfolio, which includes the morning after pill, will add to Teva’s respiratory franchise. Additionally, this agreement augments Teva’s biologics capabilities.
The combined company will operate directly in more than 60 countries and employ approximately 37,000 people worldwide. It will have more than 200 ANDAs pending with the FDA with annual brand sales of greater than $120 billion, including approximately 70 first-to-file Paragraph IV challenges, and approximately 3,700 product registrations pending with various regulatory authorities worldwide, primarily in Europe.
“The acquisition of Barr will elevate Teva’s market leadership to a new level,” points out Shlomo Yanai, president and CEO of Teva. “The combination of our two companies provides an outstanding opportunity strategically and economically.
“It will enhance our market share and leadership position in the U.S. and key global markets, further strengthen our portfolio and pipeline, and provide upside to our strategic plan by allowing us to exceed our 20/20 goals for 2012.” This five-year plan is to double revenues by 2012 to $20 billion with net income margins of at least 20%.
Under the terms of the acquisition, Teva has offered to pay $66.50 per share of Barr common stock. This represents a 16.31% premium over Barr’s closing price yesterday. Each share of Barr common stock will be converted into $39.90 in cash and 0.6272 Teva ADRs. Teva will also assume Barr’s net debt of approximately $1.5 billion.
If the merger agreement is terminated under certain circumstances, Barr will be required to pay Teva a termination fee of $200 million.