Update: Watson Pharmaceuticals Confirms Buyout
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Watson Pharmaceutical (NYSE: ACT) share sky rocketed April 26 after the company confirmed the rumors regarding the buyout of Swiss drug maker Actavis. The company announced that it would be paying roughly $5.9 billion for the acquisition which places Watson third in global markets behind Teva Pharmaceuticals (NYSE: TEVA) and the Sandoz division of Novartis (NYSE: NVS).
Teva is based in Israel and is the world’s largest generic drug maker showing $18.5 billion in sales last year. Teva recently signed an agreement to acquire 57% of the privately held Taiyo Pharmaceutical Industry Co. Ltd. For $460 million in cash paid directly to shareholders. Taiyo is the third largest pharmaceutical company in Japan.
Sandoz is healthy in its own right reporting $9.5 billion in sales for 2011. While Novartis isn’t pursuing and acquisitions at the moment they are receiving patents on several new drugs including Afinitor, used to treat non-cancerous kidney tumors, and Signifor which is used to treat Cushing’s disease.
The deal is supposed to play out like this; Watson will pay $5.9 billion cash upfront then extend certain considerations. Should Actavis reach particular goals for 2012 the stakeholders would receive 5.5 million shares of Watson common stock in 2013 valued at approximately $330 million.
Rumors of the buyout have been circling for quite some time caused small rises in the company’s stock. Thursday’s announcement sent the stock to its highest price. Eventually, the price settled slightly lower than the high but still a good 6% above opening.
Since every deal has its flaws, it is important to note that even though this one will allow Watson to make huge headway in several emerging markets there is also a concern regarding the ongoing pressures of European pricing. Despite this disadvantage Watson is still expecting the deal to be closed by the end of the fourth quarter.
"In a single commercially compelling transaction, we more than double Watson's international access and strengthen our commercial position in key established European markets as well as exciting emerging growth markets, including Central and Eastern Europe and Russia," Watson Chief Executive Paul Bisaro said in a statement.
Watson’s deal highlights the activity that has been going on in the pharmaceutical industry lately. For instance, AstraZeneca recently agreed to purchase Andrea Biosciences for $1.26 billion. Meanwhile, companies like Human Genome Sciences and Illumina Inc are fending off takeover attempts from companies like GlaxoSmithKline and Roche Holdings, respectively. After spurning a bid from Bristol-Myers Squibb, Amylin Pharmaceuticals is seeking potential buyers.
The Deutsche bank will find relief in the deal as well considering they are holding on to billions of euros in debt courtesy of the 2007 leveraged buyout by the Icelandic tycoon Bjorgolfur Thor Bjorgolfsson. Watson’s purchase will allow the bank to free up a much needed capital buffer.
Watson is determined to move into more emerging markets in order to expand their base and increase revenues. This buyout opens the door wide making it possible for the company to gain new ground while working its way into areas they were previously unable to enter. Watson appears to be on the right road to achieve the goals it has set for itself.
To view the Press Release go to: http://ir.watson.com/phoenix.zhtml?p=irol-eventDetails&c=65778&eventID=4766099
BobbieJohnson has no positions in the stocks mentioned above. The Motley Fool owns shares of National Oilwell Varco. Motley Fool newsletter services recommend National Oilwell Varco, and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.