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Watson Pharmaceuticals Inc. (WPI) Wednesday will announce it's buying Swiss rival Actavis, in a EUR4.5 billion deal that will advance the U.S.-based group up the global rankings of generic drug makers, several people familiar with the matter told Dow Jones Newswires Tuesday.
"The deal will be announced Wednesday," one of the sources said.
As Actavis totaled roughly EUR300 million in earnings before interests, taxes, depreciation and amortization in 2011, the transaction values the company between 14 to 15 times its EBITDA, which exceeds multiples of 10 to 12 times the EBITDA in recent industry take-overs.
Watson of Parsippany, N.J., will pay EUR4.25 billion upfront and another EUR250 million provided Actavis reaches specific milestones, the person added. The transaction will enable Watson to achieve annual synergies of over $300 million from the third year on, the person said.
The deal will allow US-focused Watson to expand its international footprint and become the world's third-largest maker of generic drugs behind Israel-based Teva Pharmaceutical Industries Ltd. (TEVA) and Swiss drug giant Novartis AG's (NOVN.VX) unit Sandoz. Current third largest is U.S.-based competitor Mylan Inc (MYL).
Watson has received a bump from sales of no-name drugs like the generic version of Lipitor. But like a lot of generic drug makers, the company is trying to diversify ahead of the anticipated impact from drug patent expirations over the next few years.
Watson has therefore been trying to expand globally. Last year, it bought Greek generic drug maker Specifar Pharmaceuticals SA for EUR400 million and an Australian unit of Strides Arcolab Ltd. for A$375 million ($391 million). Its 2011 revenue was $4.6 billion.
Actavis was taken private in 2007 by Icelandic billionaire Thor Bjorgolfsson's private-equity firm Novator in a roughly $5 billion deal. The chunk of the leverage buyout loan came from German lender Deutsche Bank AG (DBK.XE). Actavis then went on an acquisition spree, snapping up generic-drug companies all over the world, building a big debt load in the process.
Deutsche Bank reportedly took charge at Actavis when a big chunk of Mr. Bjorgolfsson's wealth was wiped out in late 2008 through the collapse of Icelandic bank Landsbanki Islands hf, making a restructuring of Actavis debt necessary.
Although details of Actavis's current ownership structure are unclear, Deutsche Bank now owns a preferred-share stake, a person familiar with the matter told Dow Jones Newswires earlier.
Germany's biggest bank has already written down EUR457 million on its exposure to Actavis in 2011 and is said to take another hit in the first quarter.
On the flip side, analysts assume Deutsche can free up around EUR400 million in equity it had to keep to cover its exposure to Actavis.
By Eyk Henning, Dow Jones Newswires, +49 (0)69 29725 108; firstname.lastname@example.org