2nd UPDATE: Teva To Buy Cephalon For $6.8 Billion; Valeant Abandons Bid
May 02 2011 - 12:07PM
Dow Jones News
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 said Monday
that it plans to stop those efforts and will no longer pursue a
takeover.
Cephalon shares rose 4.5% to $80.44, while Teva's American
depositary shares climbed 3.5% to $47.31. Valeant shares slid 8.2%
to $48.31.
"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 is expected to close in
the third quarter with Teva using existing cash, lines of credit
and newly issued debt.
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 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. J.P. Morgan noted that the cost savings
represent about a quarter of Cephalon's estimated 2014 operating
expenses.
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 the 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.
Last year, Copaxone made up about 70% of Teva's total branded
revenue and Yanai projected that would fall to 47% or less in 2015
with the addition of Cephalon.
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 the company
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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