Merrill Lynch yesterday issued an update on Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) in light of the drug company's plans to acquire Ivax for $26 in cash and stock, up to a value of $7.4 billion.
"On the surface, the deal makes strategic sense to us and we believe it will be appreciated by long term investors," Merrill Lynch analyst Gregory B. Gilbert wrote. "That said, from the current price, we believe the stock may be range-bound due to arbitrage pressure and difficult competitive dynamics in the US generic market. We are maintaining our 'Neutral' rating for Teva." Merrill Lynch also changed its rating for Ivax to 'No Opinion,' given the stock is no longer trading on fundamentals.
"In our view, the most important attributes that Ivax brings to the table are its respiratory business (primarily asthma inhalers, generic and branded) and branded R&D and marketing capabilities, which we believe will become increasingly important later this decade after the U.S. patent cycle runs its course. The combination of the two companies would create a global powerhouse and strengthen Teva's already-dominant position in the US generics market. Teva management estimates that combined business mix would be 75% generic, 17% brand (includes branded generics), and 8% API.
"From a geographic perspective, the deal would help improve Teva's presence in Latin America and Central and Eastern Europe. According to Teva management's estimates (based on combined 2004 revenues), Teva's US-Europe-other sales mix percentages would go from 64/26/10 to 59/29/12. We continue to believe that a diversified revenue base, both in terms of geography and business mix, is the way to go given the volatility in the sector."
Published by Globes [online], Israel business news - www.globes.co.il - on Tuesday, July 26, 2005