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Actavis to buy Warner Chilcott in $5bn stock deal

GENERIC drugmaker Actavis Inc, itself the subject of takeover speculation, said on Monday it would buy specialty pharmaceutical company Warner Chilcott Plc for $5bn in stock to expand its branded drug portfolio, lower taxes and increase profits.

Warner Chilcott brings a portfolio of branded women's health pharmaceuticals, such as the contraceptive patch to Actavis, which makes and sells drugs that are no longer under patent protection.

This is the second major acquisition in the past two years for Actavis, which competes against substantially larger companies like Teva Pharmaceuticals Industries Ltd and Mylan Inc.

The move comes after reports that Actavis was a takeover target after weeks of reports that it had spurned approaches from Canadian pharmaceutical company Valeant Pharmaceuticals International Inc and Mylan.

Analysts have said that buying Warner Chilcott would kill the chances of a takeover of Actavis.

Actavis Chief Executive Officer Paul Bisaro declined to comment on the deal speculation during a conference call with analysts.

"I think we have remained very focused on our objectives," Bisaro said. "We wanted to get bigger in our brand business."

The deal also would benefit the company's tax structure, he said.

Actavis said the deal would add 30pc to earnings per share in 2014, in part because it would pay lower taxes when it incorporates in Ireland, where Warner Chilcott is based.

"The longer-term benefit of a lower tax rate is that it allows you to acquire other companies at even better prices," said BMO Capital Markets analyst David Maris. He said he expected the company to continue with more deals - maybe even bigger ones - after digesting Warner Chilcott.

"This is a sector that's consolidating, so they'll clearly be pursuing more deals, but first they have to close this one," Maris said. "More are likely in 2014 and 2015."

Earlier this year, Watson Pharmaceuticals changed its name to Actavis, which it bought last year.

After it buys Warner Chilcott, Actavis will retain its name and have $11bn in annual sales, up from $5.91bn in 2012.

Warner Chilcott shareholders will receive 0.16 share of the combined company. The companies said that would equate to $20.08 per share, based on Actavis' closing share price of $125.50 on Friday.

The purchase price is a 34pc premium to Warner Chilcott's closing share price of $15.01 on May 9, the day before the companies disclosed that they were in talks. Warner Chilcott shares since rose to close at $19.19 on Friday, narrowing the premium to less than 5pc.

The stock was up 4.4pc at $20.06 in morning trading, while Actavis rose 3.5pc to $129.90.

Warner Chilcott will have about a 23pc stake in Actavis after the deal.

The companies said the deal, including debt, was valued at $8.5bn.

Actavis advisors were Bank of America Merrill Lynch and Greenhill. Warner Chilcott was advised by Deutsche Bank.

Reuters