Deal size: $40.5 billion
Date announced: July 27, 2015
Of all the deals in this report, Teva’s generics acquisition may have crippled the buyer most. In 2015, Teva agreed to pick up Allergan’s generic offerings after a string of deals at the latter company orchestrated by famed pharma dealmaker Brent Saunders.
At the time of the agreement, Teva’s then-CEO Erez Vigodman saw the deal as a win. He said in a statement that through the deal, “we will establish a strong foundation for long-term, sustainable growth.” Little did he know that generics pricing scrutiny would intensify after the company struck the agreement, and that competition would drive prices drastically lower.
It wasn't long before market watchers were calling the buyout a mistake, and years later, we can see it was a major blunder.
Teva is still working to climb out of the hole it fell into with that purchase. U.S. generics pricing cratered after the deal, and Teva has since cut its revenue guidance multiple times. The company is saddled with deal-related debt. Vigodman's gone, replaced by former Lundbeck CEO Kåre Schultz.
And as of mid-2019, Teva had cut 10,000 positions, putting thousands of people out of work. Schultz is working to slash other costs, too, as Teva retrenches with a $3 billion savings plan.
And then there’s price. One year after the agreement, investors said Teva had “grossly” overpaid, maybe to the tune of 25%.
Teva’s stock was trading at about $62 per share before the deal, and it jumped on the news to more than $70. Far from it anymore: Shares were trading at around $8.60 in early November 2019.
Meanwhile, the company had about $26.6 billion in debt as of mid-2019, and Schultz said at the time that the company plans to keep using cash flow to pay down debt.
Aside from the restructuring and debt load, the company is also defending against a large generics price-fixing probe in the U.S. On multiple fronts, it’s clear to see how the deal put Teva in a worse position.
In contrast with Teva, the deal made Saunders look like a winner; after all, he was able to unload the business at a high price. Though Allergan has faced plenty of its own challenges since, it didn't have to deal with the generics nightmare. And arguably, with the generics business still in hand, Allergan might not have caught the interest of AbbVie, which is buying the company in a $63 billion deal.