Actavis and Warner Chilcott’s snapshot
Actavis Inc (NYSE:ACT) provides 250 generic pharmaceutical product families and more than 40 brand pharmaceutical products in more than 60 countries around the world, operating in three main business segments: Actavis Pharma, Actavis Inc (NYSE:ACT) Specialty Brands and Anda Distribution. Most of its revenue, $4.45 billion, was generated from the Actavis Pharma segment. The Anda Distribution segment contributed $986.4 million in sales and the Actavis Specialy Brands generated more than $482 million in revenue.
Among the three, the Actavis Inc (NYSE:ACT) Pharma segment has the highest margin at 33.3%, with the highest operating income of $1.48 billion, while the Anda Distribution segment had the lowest margin at 5.1%, with $50 million in profits. Actavis concentrates its sales into two biggest customers, Walgreen Company (NYSE:WAG) and McKesson Corporation (NYSE:MCK), accounting for 16% and 14%, respectively, of the total net sales.
Warner Chilcott Plc (NASDAQ:WCRX) is the U.S. leader in women’s healthcare, gastroenterology and dermatology, with six main product classes. The majority of its revenue, $793 million, or 31% of the total revenue, was derived from the sale of gastroenterology’s products. Osteoporosis products ranked second with $591 million in sales, or 23% of the total revenue, while the Hormonal Contraceptives products generated $544 million in sales. The company also has quite a concentrated customer base. Its three biggest customers are McKesson Corporation (NYSE:MCK) (27% of the total revenue), Cardinal Health (26%) and AmerisourceBergen (12%).
A good merger for Actavis
The merger would be a good move for Actavis Inc (NYSE:ACT) Specialty Brands to expand its footprint in gastroenterology and dermatology market, with $3 billion in annual revenue in Actavis Specialty Brands. Actavis estimated over $400 million in anticipated after-tax operational synergies, cost cutting and tax savings, which would be realized in 2014. The combined company would generate strong operating cash flow with only less than 3 times debt/adjusted EBITDA right after deal close. Along with a combined entity’s tax rate of around 17%, it thought the deal would generate more than 30% accretive to the 2014 non-GAAP EPS.
At around $20 per share, Warner Chilcott is worth $5 billion on the market. The market values Warner Chilcott Plc (NASDAQ:WCRX) at only 6.12 times EV/EBITDA. In contrast, Actavis Inc (NYSE:ACT) has a much higher valuation. It is trading at around $127.20 per share, with a total market cap of about 16.25 billion on the market. It is valued at as high as 15.3 times EV/EBITDA.
Could Mylan bid higher?
Actavis has also been an acquisition target from another pharmaceutical firm, Mylan Inc. (NASDAQ:MYL). Mylan had offered to acquire Actavis at around $120 per share, with a total transaction value of around $15 billion. According to Michael Waterhouse, a Morningstar analyst, with the Actavis Inc (NYSE:ACT) acquisition Mylan Inc. (NASDAQ:MYL) could get access to a decent product pipeline and Eastern European markets.
In the first quarter of 2013, Mylan generated around $1.63 billion in revenue, higher than the revenue of $1.58 billion in the first quarter last year. Its adjusted diluted EPS came in at $0.62, a growth of 19% compared to around $0.52 EPS in Q1 2012. In the first quarter, Mylan Inc. (NASDAQ:MYL) has spent around $500 million to purchase around 16.3 million shares from the market. For the full year 2013, Mylan expected to generate around $2.75 to $2.95 adjusted EPS. Mylan Inc. (NASDAQ:MYL) is trading around $31.20 per share, with the total market cap of around $11.9 billion. The market values Mylan at a much cheaper valuation than Actavis, at only 9.4 times EV/EBITDA. Interestingly, Bernstein thought that Mylan could be a potential competitor of Actavis Inc (NYSE:ACT) in the bid for Warner Chilcott Plc (NASDAQ:WCRX), with a higher offering price of around $22 per share.
My Foolish take
Warner Chilcott Plc (NASDAQ:WCRX) seems to be a good fit for both Mylan Inc. (NASDAQ:MYL) and Actavis with its leading market position in gastroenterology and dermatology. However, the offering price made by Actavis Inc (NYSE:ACT) seems to be quite low, at only 6.4 times EV/EBITDA, much lower than the EV multiples of both Actavis and Mylan. Consequently, I would expect a higher bid from other big pharmaceutical companies for Warner Chilcott Plc (NASDAQ:WCRX).
The article Could Warner Chilcott Receive a Higher Bid? originally appeared on Fool.com.
Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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