Dallas, Texas 07/28/2015 (Financialstrend) – Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is to buy Allergan’s generic drug business for $40.5 billion, a deal expected to reaffirm its position as the No.1 maker of generics. The deal also allows Allergan PLC (NYSE:AGN) to shift its focus to branded drugs while getting the much-needed cash to pay down its debt as well as pursue other ‘transformational’ acquisitions.
Antitrust Concerns
Under the terms of the agreement, Allergan is to receive $33.75 billion in cash while being entitled to $6.75 billion worth of Teva stock representing a 10% stake. The acquisition is the largest in terms of value, ever carried out by an Israeli company. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) plans to use the acquisition to provide patients with a wider variety of affordable medicines.
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) may have to offload some of its drugs to allay antitrust concerns that may provide the biggest headwind to the approval process. However, the company may also struggle to find buyers for some of the drugs given the wave of consolidation that has hit the sector. Upon regulatory satisfaction on the proposed asset sales, Teva expects the deal to close in the first quarter of 2016.
Expected Earnings
The deal is a major milestone for the Israeli company having failed to acquire Mylan NV (NASDAQ:MYL) last year. The unit’s acquisition is however a better fit expected to improve Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s distribution channel while also providing access to more profitable injectable drugs. The combined company is expected to generate annual revenue of about $26 billion with annual earnings before tax, depreciation and Amortization of about $9.5 billion.
The deal is also a great achievement for CEO Erez Vigodman, who has been under immense pressure to pursue other sources of revenue as competition in the generic space heats up. The health care sector has been a buzz of activity on the M&A front, deals worth $398.5 billion already inked.
