Zoetis to consider any value-increasing M&A, Virbac tipped as target
Zoetis (NYSE: ZTS) will look at any opportunities for M&A that increase the New Jersey-based animal-health company’s value, according to Juan Ramon Alaix, chief executive. The Wall Street Journal quoted the CEO speaking at the company’s quarterly results presentation yesterday, 5 May.
The report suggested the French livestock-focused group Virbac as a possible takeover target for Zoetis. The Paris-listed company has a USD 2.1bn market cap, the item noted. It stated that most deals are likely to be curtailed in size by competition issues but a number of smaller transactions could be targeted instead.
The company announced in its quarterly results a comprehensive initiative to simplify operations, improve cost structure, and better allocate resources to generate cost savings of approximately USD 300m by 2017. This follows the company coming under pressure from activists earlier this year. This news service reported in April that Pershing Square Capital Management’s Bill Ackman said he approved of the progress that Zoetis (NYSE:ZTS) was making after the animal health products maker appointed a second board member under pressure from the activist investor.
Link to WSJ Article : http://www.wsj.com/articles/zoetis-wont-tame-pharma-m-a-1430848614
Full article below :
Zoetis Won’t Tame Pharma M&A
Despite antitrust considerations, Zoetis has signaled that more pharmaceuticals mergers are on the way.
The great pharmaceuticals merger boom of 2015 isn’t over yet.
Zoetis, the animal-health giant spun out from Pfizer in 2013, is on the hunt. That was the message delivered by Chief Executive Juan Ramon Alaix as the company reported quarterly results on Tuesday: “We would be considering any M&A opportunity that will increase the value of this company.”
This follows the appointment last month of Paul Bisaro , former Chairman and Chief Executive of serial acquirer Actavis, to the board of directors. Meanwhile, activist hedge fund Pershing Square Capital Management took an 8.4% stake in Zoetis in November.
If the company’s cost-cutting plan announced on Tuesday is any guide, it seems likely that Zoetis will be the one doing any acquiring. It plans to cut up to 2,500 workers and 5,000 products, comprising about one-quarter of the workforce and 40% of the product range—leaving less scope for a potential acquirer to reap synergies.
The size of any single deal is likely to be limited by antitrust considerations. Zoetis is the largest animal-health company in the world by sales. Last year’s revenue was $4.8 billion, while its closest competitors, the animal-health divisions of Merck and Sanofi, booked $3.4 billion and $2.8 billion, respectively.
Zoetis appears to have the capacity to do several smaller deals, though. Management noted Tuesday that it considers a ratio of 2.5 times gross debt to trailing earnings before interest, taxes, depreciation and amortization—not far from the current figure—to be a “floor.” And it is lower than the leverage found elsewhere in the pharmaceuticals sector: look at Actavis on 5.9 times or Valeant Pharmaceuticals International on 6.4 times.
One potential target is Paris-listed Virbac, with a $2.1 billion market value that is about one-tenth that of Zoetis and weighted more toward livestock treatments. It doesn’t look like the sector’s animal spirits will calm anytime soon.