Deal Reporter
Actavis focusing on bolt-ons; wary of large hostile takeovers
Actavis (NYSE:ACT), the Ireland-based pharmaceutical company, will concentrate its M&A search on bolt-ons and is reluctant to pursue hostile takeovers, according to executives.
On the 1Q15 earnings call held Monday (11 May), Deutsche Bank analyst Gregg Gilbert asked CEO Brenton Saunders to comment on the near-term desire to pursue a large acquisition.
“Our commitment to maintain our investment-grade rating is of critical importance to us,” the CEO replied. “We will continue to look at bolt-on deals as a matter of course.”
He added that with its current cash constraints, a transformational deal would have to be “truly compelling” for Actavis to use equity.
Later in the session, Piper Jaffray analyst David Amsellem asked about the company’s priorities in terms of US or ex-US bolt-ons for its Generics business.
President, Generics and Global Operations Robert Stewart said while Actavis opportunistically looked at M&A in the US, it already had scale in the country and did not believe further buys would provide it with anything meaningful. He noted that the only area of interest could be a portfolio of injectable products.
“Outside the US, we’re always looking at different geographies that we’re already strong (in),” Stewart continued, noting the purchase of UK-based Auden Mckenzie as an example. “We may look in certain markets where there might be some tuck-in type acquisitions to just increase our overall strength there, more portfolio based, more small company type of transactions.”
He added that the company did not require a large acquisition within the Generics business to remain competitive.
Earlier on the call, Cowen analyst Ken Cacciatore asked if Actavis would consider being less passive in approaching a larger player for a takeover opportunity.
“Doing a hostile deal against a large-going concern, like we’ve seen in the industry over the last 12 months, is value-destroying,” CEO Saunders said.
Saunders noted that Actavis was experienced at integrating buys, with its respectful treatment of a target’s people key to its success. He added that there were opportunities for hostile deals when buying a single product or research program for which staff were not key to the operation.
“But in most of these businesses, people are such a large part of the equation, I think, going hostile in virtually every instance is a mistake. There could always be an exception to that,” Saunders said.
Generics interest
Separately, Goldman Sachs analyst Jami Rubin noted that there were companies that could be willing to pay a very high multiple for Actavis’ Generics business and asked if there was a way to sell the unit in a tax-efficient manner.
Saunders said the space was “in a bit of turmoil,” with two hostile situations in progress. He noted that while selling the Generics business in a tax efficient way would be very difficult, the fact that Actavis considered the unit to have strategic value was of greater importance.
Asked by JPMorgan analyst Christopher Schott whether the company would consider separating its Brand and Generics franchises if its share price remained at current valuations, the CEO said Actavis’ lower than normal stock levels would not cause it to consider selling the Generics business.
He added that the company had only recently closed its purchase of Allergan and needed to integrate the deal and demonstrate to shareholders the value of the combined business.
Recent efforts
In his prepared remarks, Saunders said Actavis had completed one of the largest deals in the healthcare industry over the past 10 years during the first quarter, its USD 66bn purchase of Allergan. Actavis expanded its international portfolio with the acquisition of Auden Mckenzie and sharpened its brand therapy focus with the disposals of its respiratory business and Aptalis Pharmatech, he said. The CEO added that Actavis had also previously sold its generic products in Australia.
The company announced in November last year its agreement to buy California-based health care company Allergan for USD 219 per share in cash and stock. In February 2015, Actavis announced a USD 8.4bn offering to finance the cash portion of the deal.
When combined with Allergan, Actavis’ brand portfolio includes six franchises in therapeutic categories, including: Dermatology and Aesthetics; CNS; Eye Care; Women’s Health & Urology; GI and Cystic Fibrosis; and Cardiovascular and Infectious Disease. The company’s Generics portfolio includes more than 1000 generics, branded generics, established brands and OTC products.
Actavis used JPMorgan for the Allergan deal, along with Arthur Cox, Cleary Gottlieb Steen & Hamilton, Covington & Burling, Davies Ward Phillips & Vineberg, Weil Gotshal & Manges and Loyens & Loeff.
For previous sizeable acquisitions, including the purchases of Forest Laboratories in 2014 and Warner Chilcott in 2013, advisors have included BofAML and Greenhill on the financial side, as well as Skadden, Arps, Slate, Meagher & Flom, Loyens & Loeff and Latham & Watkins for legal. The latter was also retained for the Auden Mckenzie deal and several earlier buys.
Actavis has global headquarters in Dublin, Ireland and US administrative headquarters in Parsippany, New Jersey.
On the call, Actavis reported total debt of USD 44bn at the end of the quarter, with a leverage ratio of 4.1x debt-to-pro-forma adjusted EBITDA. The company has a market capitalization of USD 118.4bn.