Teva To Acquire Allergan’s Generics Business for $40.5 Bn

Teva Pharmaceutical Industries has dropped its pursuit of Mylan N.V. and instead has made a $40.5 billion offer to acquire the global generics business of Allergan (the new corporate name of the combined Actavis and Allergan) in a friendly acquisition proposal. The deal, approved by the boards of both companies, would cement Teva's position as the number one global generics company and position Allergan as an almost nearly pure-play specialty pharma company.

Under the deal, Teva Pharmaceutical Industries Ltd. agreed to acquire Allergan Generics, the generics business of Allergan (formerly the generics business of Actavis) for $40.5 billion ($33.75 billion in cash and $6.75 billion in shares of Teva), which would give Allergan an approximate 10% stake in Teva. The transaction was unanimously approved by the boards of directors of Teva and Allergan and is expected to close in the first quarter of 2016.

“This transaction delivers on Teva's strategic objectives in both generics and specialty,” said Erez Vigodman, president and CEO of Teva,” in a company statement. “Through our acquisition of Allergan Generics, we will establish a strong foundation for long-term, sustainable growth, anchored by leading generics capabilities and a world-class late-stage pipeline that will accelerate our ability to build an exceptional portfolio of products – both in generics and specialty as well as the intersection of the two. Our respective portfolios of generic medicines and applications are highly complementary, providing Teva with high quality growth and earnings visibility, and the scale and resources to expand upon our specialty capabilities.”

Pro forma sales of the combined company would be $26 billion, including approximately $11 billion in sales outside the United States. The acquisition, once completed, would move Teva into the top 10 in global pharmaceutical company rankings. Together, Teva and Allergan Generics will have a commercial presence across 100 markets, including a top three leadership position in over 40 markets, according to Teva. Under the agreement, Teva will acquire Allergan’s legacy Actavis global generics business, including the US and international generic commercial units, third-party supplier Medis, global generic manufacturing operations, the global generic R&D unit, the international over-the-counter (OTC) commercial unit (excluding OTC eye care products) and some established international brands. Allergan will retain its global branded pharmaceutical and medical aesthetic businesses as well as its biosimilars development programs and the Anda distribution business. On a pipeline basis, the combined entity would have approximately 320 combined pending abbreviated new drug applications (ANDAs) in the United States, including exclusive offerings of approximately 110 US first-to-file pending ANDAs, according to Teva.

The move positions Allergan as innovator-based specialty pharmaceutical company with 2015 pro forma sales of approximately $15.5 billion with a focus in seven therapeutic areas, including eye care, gastroenterology (GI), aesthetics, women’s health, central nervous system, urology, and anti-infectives. Allergan will have a manufacturing network of 12 plants globally and a mid-to-late-stage R&D pipeline with 70 projects and a 2015 pro forma investment in R&D of approximately $1.4 billion. The transaction would result in after-tax net cash and equity proceeds for Allergan of approximately $36 billion.

In commenting on the transaction, Allergan CEO and President Brent Saunders said in a company statement: “Over the years, our global team of highly capable and dedicated employees has dramatically expanded our generics portfolio, capabilities and footprint, with over 220 ANDAs pending FDA approval with 74 confirmed First-to-File opportunities, creating one of the most dynamic generics businesses in the world today. While we were not actively seeking a buyer for our generics business, Teva presented an offer at a very compelling valuation that reflects and recognizes the significant value that our global generics team has generated in creating and managing a world-class generics business. As a result of the transaction, we will also obtain a minority equity interest in Teva, to share in the upside of the generic R&D pipeline we are transferring in this combination.”

Teva expects to achieve cost synergies and tax savings of approximately $1.4 billion annually, largely achievable by the third anniversary of the closing of the transaction. Teva expects the savings to come from efficiencies in operations, general and administrative, manufacturing, and sales and marketing.

The transaction is subject to the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions. The transaction does not require a Teva or Allergan stockholder vote. Teva expects to obtain financing commitments within 15 business days, of the announced transaction made on July 27, 2015. Allergan will be entitled to terminate the transaction if Teva fails to obtain these commitments.

Teva’s move to acquire Allergan’s generics business puts to rest its efforts to acquire Mylan in an approximate $43 billion transaction, a move that Mylan had resisted. Earlier this month, a Dutch-based foundation exercised a call option to acquire 488 million share of Mylan, thus effectively creating a Dutch version of a poison pill to block Teva’s acquisition efforts. Earlier this year, Teva Pharmaceutical Industries made a takeover bid to acquire Mylan for approximately $43 billion, a deal that Mylan has thus far rejected, and Mylan in turn, made a bid to acquire Perrigo, a deal that Perrigo has thus far rejected. In preparing for a possible legal battle, Teva recently purchased a 4.61% stake in Mylan N.V., which enabled Teva to begin legal proceedings in a Dutch court (Mylan is headquartered in the Netherlands) regarding its takeover proposal if necessary. Mylan is domiciled in the Netherlands following its $5.3 billion acquisition of Abbott Laboratories’ non-U.S. developed markets specialty and branded generics business earlier this year. Stichting Preferred Shares Mylan, an independent foundation incorporated under the laws of the Netherlands, exercised its call option to acquire 488,388,431 Mylan preferred shares, which represented 50% of total issued and outstanding capital of Mylan. The call option agreement had been signed April 3, 2015, between Mylan and the foundation.

Since the completion of Actavis’ $70 billion acquisition of Allergan in March 2015, Allergan (Allergan become the corporate name of the combined Actavis and Allergan in June 2015), Allergan has made a series of bolt-on acquisitions to build its specialty pharma portfolio, with the latest move coming this week with an announced acquisition of Naurex, a clinical-stage biopharmaceutical company developing treatments to treat major depressive disorder, Other pending acquisitions are: Merck’s small-molecule oral calcitonin gene-related peptide (CGRP) receptor antagonists for migraine; Oculeve, which complementary dry-eye development programs to Allergan’s current eye care research and development programs; and Kythera, which enhances Allergan’s global facial aesthetics portfolio with the addition of Kybella(deoxycholic acid) injection, a non-surgical treatment for contouring moderate-to-severe submental fullness, commonly referred to as double chin.

Source: Teva Pharmaceutical IndustriesAllergan and Mylan 

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