"The story is interesting, because we've known Cephalon for many years," Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) president and CEO Shlomo Yanai told "Globes" today, following the announcement that it will acquire biopharmaceutical company Cephalon Inc. (Nasdaq: CEPH) for $6.8 billion.
"The company has been on our radar for years whenever we were considering an acquisition, and it was always on the short list of companies that we wanted to buy. We spoke with them several times in the past. It's a shame that Cephalon's founder died a few months ago, but the takeover attempt created an opportunity for us."
The acquisition of Cephalon is Teva's third largest acquisition, after Barr Pharmaceuticals Inc. and Ratiopharm GmbH, and the largest of a brand pharmaceutical company.
The opportunity that Yanai is referring to is the hostile takeover attempt of Cephalon by Canada's Valeant Pharmaceuticals International Inc. (NYSE: VRX) for $5.7 billion, an offer that Cephalon's management considered inadequate. The attempt sent Cephalon's share price soaring in recent weeks.
"Globes": Do you think that Valeant will give up, or will it make an improved offer and launch a fight against Teva?
"I don’t want to speculate. We signed the agreement, and we're now focused on the goal of closing the deal and beginning the challenge of integration."
Because of Valeant's takeover attempt, Teva is paying a higher price for Cephalon than it might otherwise have paid had the earlier talks resulted in a deal. Nonetheless, Yanai believes that the price is worthwhile. "We think that the value of the acquisition is fair, and we obviously conducted due diligence in contrast to the other company, which made an estimate without due diligence. It's hard to compare their perspective with ours. In financial terms, we think that the price is right for a great asset."
The acquisition is not subject to securing financing, and Teva expects to close the deal in the third quarter. At the end of 2010, Teva had $1.5 billion in cash and investments, but it secured a $1.5 billion credit line and it raised $750 million in a bond issue in March. This financing paved the way for the next big acquisition, which was made today.
The closing of the acquisition will make an immediate contribution to Teva's non-GAAP earnings per share, and it will contribute to the GAAP-based earnings per share within a year. Teva also believes at least $500 million in synergy in the third year after the closing.
Yanai says, "Cephalon is a specialty pharma company, manufacturing unique products for specialists and niche patients. It has an excellent reputation in the industry as a creative company and it has developed and brought to market a very large number of drugs relative to its size."
Yanai added, "The acquisition meets all the criteria of a good acquisition," adding, "This is an important strategic acquisition for Teva. Our strategy is based on two anchors: growth in generics, which is our core business; and consolidation and expansion of our brand products business.
"This acquisition fulfills the strategic goal of taking our not small branded products business - more than $4 billion, but which largely depends on one product (Copaxone - S.H.V.) - and to position it as a diversified business with a large number of products."
In the past, Teva set a target of $9.2 billion in brand drugs sales in 2015, compared with $4.2 billion in 2009. The combined pro forma brand drug sales of Teva and Cephalon was over $7 billion 2010.
"We're establishing a stable and growing future in this sector, since the two companies' products pipeline has more than 30 products in Phase II and III clinical trials," said Yanai. "Some of Cephalon's fields supplement ours: the central nervous system, and respiratory products; but they also bring us products in new fields, such as oncology and pain relief. Cephalon also greatly enhances Teva's know-how and capabilities from the drug location stage through registration."
Published by Globes [online], Israel business news - www.globes-online.com - on May 2, 2011
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