Prestige Brands Makes Another Acquisition - Analyst Blog

Prestige Brands Holdings, Inc.'s PBH shares shot up 18.13% after the company announced that it entered into an agreement to acquire Insight Pharmaceuticals Corp. for $750 million in cash. The deal is expected to close by Sep 2014.

As per the terms of the agreement, Prestige Brands stands to gain tax attributes with a present value of approximately $100 million. Thus, the effective purchase price will be approximately $650 million.

The transaction will add Insight Pharma's feminine care and other over-the-counter (OTC) healthcare products including Monistat (leading OTC yeast infection treatment brand) to Prestige Brands' portfolio. The acquisition will expand Prestige Brands' presence in the feminine care market in the U.S. and Canada. The deal will be immediately accretive to the company's earnings.

We note that this is the second agreement announced by the company this month. Earlier, the company revealed that it has signed a purchase agreement with Australia-based The Hydration Pharmaceuticals Trust of Victoria to acquire their OTC oral rehydration brand, Hydralyte. The acquisition is slated to close by Jun 2014.

The upcoming acquisition of Hydralyte will help Prestige Brands expand its business in the Austral-Asia region. With Hydralyte's leading-OTC-brand status for oral rehydration following diarrhea, vomiting, fever, heat and other ailments in Australia and New Zealand, the addition of Hydralyte to Prestige Brands' portfolio will be immediately accretive to its earnings.

Our Take

Prestige Brands has been strengthening its OTC portfolio for sometime now. We note that the Insight Pharma deal is the sixth among similar acquisitions in the last five years. Last year, the company acquired Care Pharmaceuticals to boost its OTC healthcare segment.

On the back of these acquisitions, pro forma earnings are expected in the range of $1.90 to $2.00 per share in year one, which represents a significant increase from adjusted earnings of $1.50 per share recorded in fiscal 2013. Currently, for fiscal 2014, the Zacks Consensus Estimate stands at $1.51.    

We expect to see more merger and acquisition activity at Prestige Brands, both in the feminine care category and in other segments.

Prestige Brands carries a Zacks Rank #3 (Buy). Better-ranked stocks in the health care sector include Summer Infant, Inc. SUMR and Vapor Corp. (VPCO) each with a Zacks Rank #2 (Buy) and Salix Pharmaceuticals Ltd. SLXP carrying a Zacks Rank #1 (Strong Buy).