Is Watson poised to grab Actavis?

The generic world was abuzz yesterday after rumors surfaced that Watson Pharmaceuticals ($WPI) could buy Actavis for about $7 billion. In fact, the deal could come together as early as this month, a source told Dow Jones.

Although neither company would comment to the news service, the deal could be huge for Watson. While it has a big footprint in the U.S., it could pump up its presence in Europe--particularly Eastern Europe--with an Actavis buy.

"A deal of Actavis would solve all their issues in the rest of Europe and other parts in the world," a source said, as quoted by The New York Times. "An approach by Watson would be a perfect fit for Actavis."

Watson doesn't yet have the international presence of rivals such as Teva Pharmaceutical ($TEVA), said Morningstar analyst Michael Waterhouse. "If Watson wants to be competitive with those bigger players, it's probably a move in the right direction," Waterhouse said, as quoted by Reuters.

Actavis, which formerly had its home in Iceland but now is based in Switzerland, has been dogged by the cost of its debt. Deutsche Bank financed the $5 billion leveraged buyout of Actavis in 2007 and would be in a good spot if the deal goes through, the NYT pointed out.

It wouldn't come as a total shock that Watson would make an acquisition of this magnitude. In January, CEO Paul Bisaro said his company had an interest in buying either a big generic or branded pharma company. "Our appetite for a larger transaction, it's there," he said, as quoted by Bloomberg.

And the deal may face few regulatory hang-ups. "We see little in the way of antitrust hurdles to completing the deal, as the companies' European businesses have little overlap, and overlap with the companies' U.S. businesses appears manageable," said Chris Schott, an analyst with JPMorgan Chase, as quoted by Bloomberg.

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- read the NYT's take
- see the Bloomberg story
- read the Reuters report