Teva to buy Allergan generic drug business for $40.5 billion

[IceWizard]

Mon Jul 27, 2015 5:51am EDT
By Tova Cohen

TEL AVIV (Reuters) -
Teva Pharmaceutical Industries (TEVA.TA) has agreed to buy Allergan Plc's (AGN.N) generic drugs business for $40.5 billion in a deal that will turn Teva into one of the top 10 pharmaceutical companies.

The acquisition should help Israel-based Teva,
already the world's largest generic drugmaker,
boost growth at a time its top drug, multiple
sclerosis treatment Coxaprone, is facing
competition.

Allergan's generic business is generally seen as a better fit than Teva's previous target Mylan because it will improve Teva's distribution channels and because Allergan is strong in so-called biosimilar drugs.

Teva's shares jumped 10.6 percent in Tel Aviv
after the deal was announced. Teva (TEVA.N) will pay $33.75 billion in cash and shares of Teva valued at $6.75 billion, representing a 10 percent stake in the Israel-based company, Teva said in a statement.

At the same time, Teva dropped its $40 billion
bid for Mylan, which hit a snag when a Dutch
foundation linked to Mylan bought temporary
control of half the company in an attempt to
block the takeover. This could raise the likelihood that Mylan will succeed in its bid for Perrigo Co PRGO.O.

Teva's deal with Allergan was unanimously
approved by the boards of both companies and is expected to close in the first quarter of 2016.

Teva Chief Executive Erez Vigodman said the
combined companies will have proforma
revenue of $26 billion and earnings before
interest, tax, depreciation and amortization of
$9.5 billion in 2016.

"Our respective portfolios of generic medicines
and applications are highly complementary,
providing Teva with high quality growth and
earnings visibility, and the scale and resources
to expand upon our specialty capabilities," he
said. "This acquisition reinforces our strategy,
accelerates growth and diversifies revenues
both by product and geographically, supporting
our new business model."

Teva said it believes the acquisition will be
significantly accretive to adjusted earnings per
share, including double-digit accretion in 2016
and more than 20 percent accretion in year two and year three following the close of the deal.

It expects cost synergies and tax savings of $1.4 billion annually by the third anniversary, from efficiencies in operations, manufacturing, and sales and marketing.

It also expects the acquisition to generate free
cash flow of $6.5 billion in 2016 and increased
free cash flow in subsequent years. This means it will be able to pursue future acquisitions to expand Teva's portfolio in both specialty pharmaceuticals and generics.


(Editing by David Clarke)