Pharma M&A – Actavis to Acquire Warner Chilcott

On Monday, generic drug maker Actavis Inc. ACT announced plans to purchase specialty pharmaceutical company Warner Chilcott WCRX in an all-stock deal valued around $8.5 billion. Actavis management will lead the combined company.

The move is particularly notable for Actavis, a company that has spurned attempts from Canadian pharmaceutical company Valeant Pharmaceuticals VRX and Mylan Inc. MYL, according to Reuters. Analysts believe that if the Actavis/Warner Chilcott deal is approved by Irish regulators, it would quash the chances of Actavis being a takeover target.

According to the joint conference call, Actavis will reorganize as a holding company in Ireland where the current Actavis and current Warner Chilcott companies will become subsidiaries of the new holding company. Warner Chilcott shareholders will receive 0.16 shares of the combined company which equates to $20.08 per share based on Actavis’ Friday closing price of $125.50.

Warner Chilcott comes to the table with $3.4 billion of net debt and in the midst of investigations by government agencies. Actavis will assume all of Warner’s debt and on the conference call, stated that it will continue to monitor the investigation as the close of the deal nears.

The deal creates a combined company that will drive U.S. sales of $2.9 billion making it the third largest company behind Teva Pharmaceutical Industries Limited TEVA and Forest Laboratories Inc. FRX.

In other notable news, the conference call revealed two new specialty products in late stage development that seemed to surprise analysts. When asked about the new products, referred to as 3042 and 3011 in the slideshow, management stated that these products in the Warner Chilcott pipeline were new products as opposed to bio-similar products.

The deal is expected to close by the end of 2013 with synergies beginning early 2014 and continuing through 2015.

In early trading, shares of Warner Chilcott were up 3.5 percent at $19.89. This, after a more than 20 percent move to the upside following previous rumors of the upcoming deal. Shares of Actavis were also up 3.5 percent at $129.88.

Disclosure: At the time of this writing, Tim Parker had no position in either company - but his wife is an employee of Warner Chilcott.