- Actavis not politically sensitive target
- Actavis may want breathing space to digest Forest acquisition
- Any deal likely to be costly
As a US company that inverted into an Irish tax domicile in July 2013, Actavis is politically a much easier target than a national flagship such as AstraZeneca [LON:AZN], said a second source familiar with the matter and the industry banker.
Pfizer had aimed to change its tax domicile to the UK through a tax inversion via the acquisition of AstraZeneca. But a deal with Actavis would offer a lower tax rate than AstraZeneca. In 2013, Actavis had an effective tax rate of 17.7% versus AstraZeneca’s 21.3% for the same year.
But Actavis may be unwilling to jump into a second large deal so soon after its acquisition of Forest Laboratories [NYSE:FRX], said the second source. Additionally, Actavis has other options besides Pfizer, he added.
Actavis is still digesting its latest mega-merger and would appreciate some breathing space before another large deal, said the second source familiar with the matter. Actavis completed its USD 24bn acquisition of Forest Laboratories in July this year. But there is no reason why Actavis cannot do a deal while integration goes on, said the industry banker.
Actavis is expected to extract all the synergies from its acquisition of Forest Laboratories in 2015, and consensus figures have it trading at a discount to its peers. Looking at projected 2015 EBITDA, Actavis is trading at 11.2x against a peer average of 13x, according to Dealreporter analytics.
Actavis CEO Brent Saunders would be a willing seller if Actavis received a compelling offer, said the first source and the banker. Any bid could be very expensive, the banker added, citing JPMorgan research that said Actavis may require a USD 350 per share offer. Actavis is trading at USD 237 today (19 September).
But Saunders is unlikely to have joined Actavis simply to turn it around and sell it, noted a second industry banker. Saunders joined Forest Laboratories in late 2013, before selling the company to Actavis the following year. An investor in the company noted that when Saunders was asked at a conference why he did not buy more stock in Actavis, he replied that it was because he knew too much about M&A plans to do so.
Actavis’s focus on generics and specialty pharmaceuticals would make it a good fit for Pfizer, allowing a tie-up to generate significant cost synergies, said the first source. Given the large amount of synergies that the generics unit would have, Pfizer would not be significantly levered if it made a bid for Actavis, said the first source.
Should Pfizer wish to make a move for Actavis, it should do so as soon as possible to avoid being caught out by US anti-tax inversion rhetoric, said the second source.
Actavis would be an easy inversion target for many large cap US pharma companies, including Allergan [NYSE:AGN], Eli Lilly [NYSE:LLY], Merck [NYSE:MRK], Pfizer and Bristol-Myers Squibb [NYSE:BMS]. But the second source noted that management at Eli Lilly, Merck and Bristol-Myers Squibb have all said that they were not interested in an inversion deal.
And while there are a lot of buyers who would be interested in Actavis, with a current market capitalisation of USD 63bn, it is becoming a large target, he said.
Meanwhile, Actavis is also sought-after as a buyer. Top-20 investors in Salix Pharmaceuticals [NASDAQ:SLXP] have expressed their dissatisfaction with its deal with Cosmo Pharmaceuticals [VTX:COPN] and would rather the company be bought by Allergan or Actavis.
A tie-up between Actavis and Salix would make strategic sense as both have specialty pharmaceutical pipelines, said the second source familiar with the matter. But there is less urgency in buying Salix – Actavis could wait until it has completely integrated its recent mergers, the source added.
Pfizer declined to comment. Actavis could not be reached for comment.