|Actavis CEO Brent Saunders|
It's a done deal. Actavis ($ACT) and Allergan ($AGN) have come to terms on a buyout that values the Botox maker at $66 billion, dwarfing a bid from Valeant and William Ackman that forced the biotech into play. And it gives Actavis CEO Brent Saunders exactly what he's been looking for: Bragging rights to top 10 status in the Big Pharma world--after brushing aside a weakening Eli Lilly ($LLY).
To close the friendly deal--which gained the unanimous support of both boards--Actavis came up with $129.22 in cash and 0.6383 shares for each share of Allergan, a $219 price. And Actavis investors seemed to love it. Actavis shares shot up more than 4% on Monday morning.
The $66 billion winning bid is too rich for Valeant to compete with. "Valeant cannot justify to its own shareholders paying a price of $219 or more per share for Allergan," said J. Michael Pearson, CEO of Valeant.
Once complete, Saunders will have a significant portfolio of branded and generic therapeutics on the market as well as a pipeline of new products in development. Saunders emerged as CEO of the company after helping engineer a merger between Forest Labs and Actavis, which had originally been devoted to generics and enjoys a low-tax domicile in Ireland.
|Allergan CEO David Pyott|
If the deal goes through as planned, Allergan CEO David Pyott will have achieved his aim: eluding the clutches of Valeant's Pearson ($VRX) and his ally, William Ackman, while providing a windfall for investors. Ackman and Valeant offered $53 billion for Allergan and said they might come up with more. Pyott and his board, though, have consistently maintained that the Valeant proposition undervalued Allergan and would inevitably be paid for by gutting an R&D operation that now consumes about $1 billion a year.
A combination of Allergan and Actavis creates a company with more than $23 billion in annual sales. According to a report from FiercePharma, Eli Lilly was ranked number 10 in total revenue, with $23 billion for 2013. Lilly's revenue has been in free fall this year, though, as generic competition has pummeled its biggest drug franchises.
Once the deal closes, Actavis expects to save about $1.8 billion a year starting in 2016--which doesn't include the $475 million in annual costs Allergan has already promised to slash--and that will mean cuts to the research budget. Saunders said on a call with analysts that he expects a "mid to high teens cut to our R&D spend" that would target "low-value programs," but the CEO promised to keep pipeline spending at around $1.7 billion a year for the combined company.
"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
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