The gossip about a Watson Pharmaceuticals-Actavis merger is about to be confirmed. The Financial Times reports that Watson ($WPI) will pay €4.25 billion up front for the Swiss-based generics maker, and another €250 million if 2012 financial goals are met. That's $5.9 billion total, or about 14 to 15 times earnings.
All that remains are a few signatures on the sale documents and a press announcement, which is expected before Deutsche Bank's quarterly results are released Thursday, the FT says. That's because Deutsche Bank will have to take a major writedown on the sale, after it financed Thor Björgolfsson's Actavis purchase in 2007.
After Watson swoops in to take over the company, sources tell Dow Jones, it will focus on squeezing more than $300 million from the combined cost structure within three years. With the deal, Watson would gain international reach, with Actavis' European operations hardly overlapping its own. The Actavis buy would also make Watson the world's third-largest generics maker. "A deal with Actavis would solve all their issues in the rest of Europe and other parts in the world," one source recently told The New York Times. "An approach by Watson would be a perfect fit for Actavis."
Geographical diversification is one of Watson's goals, as it girds for the end of the patent cliff--and its influx of big-time generic products--in a few years. As Watson CEO Paul Bisaro said on a recent earnings call, "I've made it very clear that if the right generic-focused large transaction presented itself, that would help us expand our footprint globally and drive additional growth through our generics business," he would take the opportunity.
(Image courtesy of Watson Pharmaceuticals)