Watson Pharmaceuticals, Inc. (WPI) recently received the green signal from the European Commission (EC) for its proposed acquisition of privately-held generic pharma company Actavis. The EC said that although the acquisition will lead to major changes in the competitive scenario, the combined entity will, nevertheless, continue facing strong competition.
The EC focused on the impact of the acquisition on the markets for drugs like anti-depressants and anti-hypertensives, especially in Denmark, Sweden and the UK.
Watson Pharma had first announced its intention to acquire Actavis in April 2012 for an upfront payment of €4.25 billion. Actavis stakeholders could also receive an additional consideration depending on the achievement of certain 2012 performance targets. The achievement of these targets would result in the delivery of up to 5.5 million shares of Watson Pharma in 2013. Actavis has a presence in more than 40 countries.
The deal is scheduled to close in the fourth quarter of 2012. Approval from the Federal Trade Commission (FTC) in the US is yet to come.
We view the upcoming acquisition of Actavis as a smart strategic move by Watson Pharma. This deal, which is expected to be immediately accretive, should help the company strengthen its presence in the ex-US generics market and expand and strengthen its presence and product portfolio. The acquisition will more than double the company’s commercial position in key European markets as well as emerging markets, including Central and Eastern Europe and Russia.
We note that this acquisition will make Watson Pharma the third largest global generics company. Other players in the generics market include Dr. Reddy’s Laboratories (RDY), Mylan (MYL) and Teva (TEVA). We currently have a Neutral recommendation on Watson Pharma, which carries a Zacks #3 Rank (short-term ‘Hold’ rating).
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