Settling a post-buyout hangover, Allergan gives Teva a $700M remedy

Teva
Teva will use the $700 million from Allergan to pay down debt. (Image: Teva)

Teva and Allergan have put aside their differences—and the result is an influx of cash that Teva badly needs.

Wednesday, the former deal partners inked an agreement to settle a dispute over the amount of working capital that changed hands when Teva took over Allergan's generics unit last year. Allergan will fork over $700 million, and Teva says it’ll use that money to repay some of the debt it incurred with that disastrous $40.5 billion buy.

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Back in November, the embattled Israeli drugmaker noted that the final cash consideration from its $40.5 billion buyout of Allergan’s generics unit was in need of tweaking. As a starting point before heading into arbitration, Teva suggested Allergan hand over $1.4 billion. Meanwhile, the Israeli company cautioned investors in a financial filing that the amount it eventually received “could be significantly lower than the amount submitted.”

That turned out to be the case in the final settlement. But while Teva will only receive half the sum it desired, it can definitely put the $700 million to use. Since the Allergan pickup—which proved to be devastating, thanks to buyer consolidation that’s forced generics prices down—Teva has struggled hard, and the mountain of debt it incurred with the buyout has made things even more complicated. In November, easing the debt burden became extra difficult as credit rating agency Fitch cut Teva’s rating to junk.

RELATED: Allergan chops 1,400 jobs to cope with early Restasis generics

New CEO Kåre Schultz, though, has a plan he’s confident can get the company back on track, if a controversial one. In December, Teva announced 14,000 job cuts it said would help it save $3 billion per year.

Allergan, meanwhile, isn’t exactly in peak shape, either. Last month, to prepare for potential generic competition to blockbuster Restasis, it slashed 1,400 jobs of its own. The move, execs said, would help the company save between $300 million and $400 million off the operating cost total it rung up in 2017—or, in other words, about half the bill it now owes Teva.