Actavis agrees to acquire Allergan in $66bn mega deal

January 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

In mid-November 2014, speculation regarding the fate of worldwide pharmaceutical company Allergan Inc was finally settled. Following months of rumour and negotiation, the firm announced that it had agreed to be acquired by rival Actavis plc, ending the hopes of potentially hostile acquirer Valeant Pharmaceuticals.

The deal for Allergan will see Actavis pay a combination of $129.22 in cash and 0.3683 Actavis shares for each share of Allergan common stock. The total price, based on Actavis’ share price at close of trading on 14 November, the day before the deal was announced, is around $219 per Allergan share, or $66bn.

The deal, which is expected to close in the second quarter of 2015, is subject to the approval of the shareholders of both companies, as well as customary antitrust clearance in the US, the EU and a number of other jurisdictions. The transaction has won the approval of the boards of both firms and, if completed, would create one of the world’s 10 biggest pharmaceutical companies. The newly combined firm’s sales will be greatly supported by the manufacture of Botox, a product which generated nearly $2bn in sales in 2013 for Allergan. The firm’s overall revenue in 2013 was more than $6bn, a figure Allergan expects to have surpassed in 2014. According to a statement announcing the deal, the new company will operate from California, where Allergan is headquartered, and New Jersey.

In a year of significant consolidation within the pharmaceutical sector, the deal for Allergan was by far the largest recorded in the space, and one of the largest recorded transactions of 2014. Furthermore, unlike some of the other significant deals in the pharma industry, the Allergan acquisition has not been positioned as a tax inversion. Despite this, the nature of the transaction will see Allergan’s tax rate fall to around 16 percent, which will reduce the firm’s annual tax bill by around $400m.

The $219 per share offer for Allergan eclipsed the offer put forward by Valeant, which had proposed a deal worth $185 per share, or $53bn. In addition to the higher price tag, the Actavis deal came with only $400m in research and development (R&D) cuts for Allergan, significantly less than the $900m of cuts proposed by Valeant. Once completed, the deal is expected to generate savings of around $1.8bn. These synergies will come on top of the $475m worth of cuts that Allergan made in 2014. Valeant expected to generate savings of approximately $2.7bn.

“This acquisition creates the fastest growing and most dynamic growth pharmaceutical company in global healthcare, making us one of the world’s top 10 pharmaceutical companies,” said Brent Saunders, chief executive and president of Actavis. “We will establish an unrivalled foundation for long-term growth, anchored by leading, world-class blockbuster franchises and a premier late-stage pipeline that will accelerate our commitment to build an exceptional, sustainable portfolio. The combined company will have a strong balance sheet, growing product portfolios and broad commercial reach extending across 100 international markets. Our combined experienced management team is dedicated to driving strong organic growth while capturing synergies and maintaining a robust investment in strategically focused R&D.”

Once the transaction has closed, Mr Saunders will lead the newly merged firm as its chief executive and president. Paul Bisaro will remain executive chairman of the board of the merged Actavis. Two members of the existing Allergan board of directors will be invited to join the Actavis board.

The newly merged company will have a strong market position across a number of specialised sectors, including ophthalmology, neuroscience, dermatology, gastroenterology and women’s health franchises.

According to David Pyott, chairman and chief executive of Allergan, the transaction will provide “Allergan stockholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company. We are combining with a partner that is ideally suited to realise the full potential inherent in our franchise. Together with Actavis, we are poised to extend the Allergan growth story as part of a larger organisation with a broad and balanced portfolio, a meaningful commitment to research and development, a strong pipeline and an unwavering focus on exceeding the expectations of patients and the medical specialists who treat them. I am thankful for the hard work and dedication of our employees, and I’m confident they will make many valuable contributions to the combined company. Looking to the immediate future, all of us at Allergan are excited to roll up our sleeves and work closely with the Actavis team to ensure a smooth transition.”

Richard Summerfield