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Watson Pharma (WPI) Gains After Agreeing To Buy Actavis Group For $5.61B

 April 25, 2012 04:45 PM

Watson Pharmaceuticals Inc. (NYSE:WPI) said it agreed to buy privately-held Actavis Group for an upfront payment of 4.25 billion euros or $5.61 billion, in an expansion step to become a leading global generics company, sending its shares up 5.75% in aftermarket.

Actavis stakeholders could also receive additional consideration, contingent upon Actavis achieving negotiated levels of certain 2012 performance targets. The contingent payment, if fully earned, would result in the delivery of up to 5.5 million shares of Watson common stock in 2013.

This contingent payment was valued during the negotiations at 250 million euros, based on a per share price of $60, using a Euro to U.S. dollar exchange rate of 1.32. Pending approvals, Watson anticipates closing the transaction in the fourth quarter of 2012.

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As a result of this acquisition, Watson will become the third largest global generics company with 2012 anticipated pro forma revenue of about $8 billion.

Watson plans to fund the cash portion of the transaction through a combination of term loan borrowings and the issuance of senior unsecured notes. Watson currently has bridge loan commitments from BofA Merrill Lynch and Wells Fargo Bank, N.A. pending execution of its final financing plans.

Watson expects that the combined company will generate substantial free cash flow, enabling Watson to pay down debt quickly to below 3.0 times debt to adjusted EBITDA by 2013 and to achieve a level of about 2.0 times debt to adjusted EBITDA in 2014.

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Actavis, which as a stand-alone company was positioned for strong growth, has a commercial presence in more than 40 countries and markets more than 1,000 products globally.

Actavis has about 300 projects in its development pipeline and manufactured more than 22 billion pharmaceutical doses in 2011. Actavis has more than 10,000 employees worldwide and had 2011 revenues of about $2.5 billion.

The transaction is financially compelling, accelerating Watson's top and bottom-line growth profile for the foreseeable future. It would be immediately accretive to adjusted earnings before synergies. Including synergies, Watson anticipates the acquisition will be greater than 30% accretive to 2013 Watson adjusted EPS, with accretion accelerating in 2014 through organic growth and further achievement of synergies.

Watson expects to achieve annual synergies of $300 million within three years after the transaction closes, predominantly consisting of SG&A, R&D and corporate cost synergies.

WPI closed Wednesday's regular session up 1.59% at $69.69. The stock has been trading between $55.00 and $73.35 for the past 52 weeks.



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