Pharma company Allergan, the largest shareholder in Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), has begun to sell its holding in the Israeli company. Allergan obtained a 9.9% stake in Teva when Teva acquired Actavis, Allergan's generics division, for almost $40 billion in 2016.
Most of the deal was in cash, but it also included 100 million shares in Teva. When Allergan received the shares, they were worth $5.3 billion, but the subsequent steep decline in Teva's share price has reduced their value to only $1.18 billion at present. Allergan has already recognized a $3.3 billion fall in value on its holdings in Teva.
Even though the value of Allergan's holding has receded, it is still enough for a financial transaction. Allergan has attached its shares in Teva in favor of the JP Morgan bank as security for a one-year loan of unspecified size. At the same time, Allergan has sold 25 million Teva shares, a quarter of its holding in the company, to JP Morgan. The shares, whose current market value is $294 million, were sold at a premium on the market value. The deal will be completed in the first quarter of 2018.
JP Morgan downgrades Teva recommendation
One interesting point is that the Allergan-JP Morgan deal in Teva's shares came just a few hours after the JP Morgan analyst covering Teva, Chris Schott, downgraded his recommendation for the share from "Neutral" to "Market underperform," with a target price of $11 per share, 6.3% lower than the current share price in New York.
Schott explained his downgrade by concern about the state of the generics market in the US and Teva's large debt ($34.7 billion at the end of the third quarter). In view of the difficulties, the analyst does not expect the company to recover in the near future, especially at a time when the company is experiencing competitive pressure on Copaxone, Teva's flagship product for treatment of multiple sclerosis. Teva, managed by new CEO Kare Schultz, is traded at an $11.9 billion market cap, following a 62.2% plunge in its share price since August and an 82.6% from its peak following the announcement of the Actavis deal in July 2015.
In retrospect, the Actavis acquisition was less successful than expected, with Teva encountering substantial price pressure in the US generics market - Teva's main market. Teva wrote off $6.1 billion in goodwill in its second quarter reports, at least some of which resulted from Actavis's business.
Published by Globes [online], Israel Business News - www.globes-online.com - on November 14, 2017
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