UPDATE: Teva To Buy Cephalon For $6.8 Billion, Tops Valeant Bid

Teva Pharmaceutical Industries Ltd. (TEVA) agreed to buy Cephalon Inc. (CEPH) for $6.8 billion, trumping a hostile offer from Valeant Pharmaceuticals International Inc. (VRX) by more than a billion dollars.

The Israeli generic drug giant has used acquisitions over the years to steadily expand its business. Monday's deal, which values Cephalon at $81.50 a share, builds and diversifies its branded drug business away from its dependence on multiple sclerosis blockbuster Copaxone. It also expands its emerging markets presence, while helping to move it closer to meeting its 2015 financial targets.

Cephalon had been fighting a hostile $5.7 billion offer from Canada's Valeant, which had proposed to remove and replace board members in connection with its $73-a-share bid. Valeant officials declined immediate comment Monday.

Cephalon shares rose 5.2% to $81.01 in early trading, while Teva's American depositary shares climbed 3.1% to $47.15. Valeant shares slid 8.6% to $48.09.

"Clearly, this acquisition is game changer for Teva," Chief Executive Shlomo Yanai said on a conference call. "We will now not only be the world's largest generics company, but also one of the world's largest specialty pharma companies."

The companies said the purchase price represents a 39% premium to Cephalon's stock price on March 29, the last closing price before Valeant's proposal was announced; a 12% premium to Valeant's offer; and 6% over Cephalon's closing stock price on Friday.

Teva Chief Financial Officer Eyal Desheh said the deal has a break-up fee of "a few hundred million" dollars, although he declined to disclose specifics.

The deal comes as Cephalon faces significant business challenges. The company is in the middle of a long-term plan to replace sales of its top-selling product, stimulant Provigil, with a similar follow-up drug called Nuvigil. Cephalon had $2.8 billion in sales last year.

Cephalon also is dealing with a leadership transition, caused by the death of its founder and longtime chief executive Frank Baldino in December. On Monday, Teva executives said the two companies had long talked of a potential deal, even before Baldino's death.

Teva said Monday that it expects the deal to add immediately to its adjusted earnings and boost its profit on a generally accepted accounting principles basis within four quarters of its closing. Teva expects cost savings of at least $500 million in the third year after the deal.

The combined companies will have more than 20 branded products on the market and a pipeline of more than 30 products in late-stage development, with three already filed for U.S. approval.

Teva said the deal moves it closer to its goal of growing its branded revenue from $4.6 billion in 2010 to more than $9 billion in 2015. On a pro forma basis, the combined company would have had branded sales of about $7 billion last year.

Teva has projected $31 billion in revenue and $6.8 billion in profit for 2015.

In February, the company said it needed to add $4 billion to $5 billion in annual revenue from acquisitions to meet its 2015 revenue target. Its last major U.S. acquisition was a 2008 purchase of Barr Pharmaceuticals for $7.46 billion.

Although Teva gets most of its sales from its generic business, it has been aiming to diversify its branded products away from Copaxone, a drug that faces increased competition along with a potential generic challenge.

Geographically, Teva gets the majority of its revenue from North America and highlighted Cephalon's overseas presence.

The deal also will bring some new generic operations to Teva that have a presence in Latin America, Africa and Eastern Europe. The assets, with about $400 million in annual revenue, came from Cephalon's $590 million acquisition of Swiss drug maker Mepha AG last year.

Teva's shares have been under pressure after reported disappointing fourth-quarter results and 2011 financial guidance, along with broader concerns about Copaxone. The stock is down 22% in the last year, based on Friday's closing price.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

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