In Israel's largest acquisition, Teva buys Allergan Generics for $40.5b

Deal will further enhance Teva’s goals of delivering the highest quality medicines at the most competitive prices, Israeli company says.

Teva Pharmaceutical Industries building in Jerusalem. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Teva Pharmaceutical Industries building in Jerusalem.
Teva Pharmaceutical Industries Ltd. said on Monday it would buy the generics unit of Allergan PLC for $40.5 billion in the largest-ever acquisition by an Israeli company.
Under the agreement, Teva will receive the Dublin-based company’s Actavis global generics business, including commercial units, manufacturing operations and R&D units related to generics. It also will get the international over-the-counter (OTC) commercial unit, not including eye care products.
Prime Minister Benjamin Netanyahu cited the transaction in a speech at the Knesset highlighting the importance of encouraging the private sector, saying he is “proud” of Israeli businesses that push the economy forward.
The transaction, which was approved unanimously by the boards of both companies, is expected to close in the first quarter of 2016, further growing Teva’s generic pharmaceuticals empire. At that point, Teva will pay out $33.75 billion in cash to Allergan, which it will finance through debt, equity, and cash on hand, plus stock currently valued at $6.75b.
“This transaction delivers on Teva’s strategic objectives in both generics and specialty,” said Teva president and CEO Erez Vigodman.
“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,” he added.
Teva, already the world’s largest generics manufacturer, estimates that the deal will put it in the top 10 of global pharmaceutical companies and wring out $1.4 billion in tax and cost savings in the second and third year after the deal closes.
For its part, Allergan termed the deal “financially compelling” and said it plans to use the cash, in part, to pay down debt.
The acquisition comes after months of wrangling between Teva and Mylan NV, another pharmaceutical company Teva was intent on acquiring for roughly $41 billion.
Mylan resisted the attempt, and voted down the offer unanimously in April, though Teva continued to court it heavily until the Allergan deal came about. Mylan itself had pursued Israel’s Perrigo as an acquisition.
Teva said during a conference call Monday that it had approached Allergan a year ago, but that the company had not been interested. It then went after Mylan. When that failed, it went back to Allergan about 2-1/2 weeks ago.
Teva shares, which had been weighed down by the Mylan uncertainty, jumped 13 percent in morning trade in New York, Allergan increased 7% and Mylan slid 14%.
The acquisition is the latest in an unprecedented wave of healthcare deals since the start of 2014, stretching from large drugmakers buying up smaller rivals to consolidation among makers of generic medicines and tieups between insurers.
Global healthcare M&A reached $398.5b. as of July 23, up 80% from a year ago, according to Thomson Reuters data. Economies of scale are particularly important in generics given the relatively low margins involved and the highly competitive market.
Teva said it had identified asset sales needed for the deal to pass muster with antitrust regulators in the United States and the United Kingdom.
It declined to identify the assets, but said they were fewer than had been anticipated in a combination with Mylan.