Actavis Inc. (ACT:US), the largest U.S. maker of generic drugs by market value, said it’s in “early stage discussions” to buy Warner Chilcott Plc (WCRX:US), the drugmaker that unsuccessfully pursued a sale last year.
Bloomberg reported yesterday before the announcement that the companies were in acquisition talks, citing people familiar with the matter who asked not to be named because the discussions were private. The negotiations come a few weeks after Actavis weighed a merger with fellow generics maker Valeant Pharmaceuticals International Inc. (VRX), said the people.
“Actavis has entered into early stage discussions with Warner Chilcott Plc regarding a potential combination of the two companies,” Parsippany, New Jersey-based Actavis said in a statement. Warner Chilcott issued a similar statement. The companies said no agreement had been reached and they would have no further comment on the talks.
Warner Chilcott, led by Chief Executive Officer Roger Boissonneault, had a market value of about $3.76 billion as of yesterday. Combining with Dublin-based Warner Chilcott would lower Actavis’s tax burden over time, and would help the generics maker expand in women’s health, said one of the people.
“It’s a great combination for the two of them,” David Maris, an analyst with BMO Capital Markets Corp. in New York, said yesterday in a telephone interview. “Actavis gets to add in the brand areas. They get a new therapeutic area -- dermatology --and second, they add to their women’s health market.”
Warner Chilcott shares advanced (WCRX:US) 20 percent to $18.01 at yesterday’s close in New York, its largest one-day increase since August 2009. Actavis shares rose (ACT:US) 12 percent to $119.86, its biggest one-day gain since March 2000.
More than a year ago, Warner Chilcott disclosed that it was in discussions with potential bidders and conducting a strategic review. Actavis was among the suitors that considered an offer for the company during that process, said another person.
In August, Warner Chilcott said talks had ended and it planned to renew a share-buyback program and pay a special dividend that would be more rewarding for shareholders.
Actavis’s talks with Valeant stalled over a disagreement on price, people familiar with the process said last month. While the talks were halted, they could become active again, another person said then. Actavis’s market value was $15.3 billion at the close of yesterday’s trading.
“We kind of have a corporate love triangle with Actavis, Valeant and Warner Chilcott,” said Kevin Kedra an analyst with Rye, New York-based Gabelli & Co. “These two incidents are probably related. It could be to some degree a defensive move, in light of Valeant pursuing” Actavis.
CEO Paul Bisaro has put Actavis -- originally named Watson Pharmaceuticals -- on an expansionary path during his tenure, announcing plans to push the generics business worldwide and to buy and develop brand-name drug assets with bigger profit margins. Investors have rewarded the company; since Bisaro took over in September 2007, the stock (ACT:US) has about tripled.
“I don’t think Paul Bisaro would enter into a deal in a quick way to prevent Valeant from making a high offer for the company,” BMO’s Maris said. “It may provide that defense, but that’s not what’s driving this.”
Under Bisaro, the company has been using deals to grow rapidly. Then-Watson bought Actavis Group hf and took its name last year in a 4.25 billion euro ($5.52 billion) deal.
Actavis makes generic versions of birth-control pill Seasonique and pain medication Percocet. Last year, Bisaro said the company would focus more on brand acquisitions and licensing deals to expand. He has said he is most interested in narrow, specialty segments or new formulations of existing drugs.
The deal would also let Actavis sell Warner Chilcott’s products abroad. Actavis is expanding in European and emerging markets, and had 18 percent of its sales outside (ACT:US) the U.S. last year, while 90 percent of Warner Chilcott’s sales were in the U.S. or Canada.
Actavis has “a big European business and a growing South American business,” Maris said. “You can take those Warner Chilcott products and layer them into geographies they haven’t been in.”
Warner Chilcott’s products include oral contraceptives such as Ovcon 35 and Estrostep FE, as well as the acne treatment Doryx. The company reported first-quarter revenue of $593 million yesterday, a 13 percent drop from a year earlier, after halting trade shipments of a version of its colitis drug Asacol in the U.S. to transition to Delzicol. Net income was unchanged at $113 million.
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