(Updates throughout, including comments from conference calls,
additional background, latest stock prices.)
DOW JONES NEWSWIRES
Warner Chilcott Ltd. (WCRX) confirmed Monday it will acquire
Procter & Gamble Co.'s (PG) prescription-drug business for $3.1
billion, a deal that expands the specialty drug maker's footprint
while allowing P&G to focus more on its consumer health-care
business.
Warner Chilcott, whose shares recently were up 32% at $21.29,
plans to exploit its own low tax rates and gain a foothold in
Europe with the purchase. The Ireland-based company, which makes
birth-control pills, gains access to P&G drugs Actonel for
osteoporosis and colitis treatment Asacol while establishing the
company in the urology market ahead of its expected introduction of
erectile dysfunction treatments.
The deal is expected to close by the end of the year and
increase Warner Chilcott's share in the so-called specialty market,
in which companies focus on drugs for smaller disease areas than
those targeted by major drug makers. P&G's pharmaceutical unit
had about $2.3 billion in sales for the year ended June 30,
compared with just under $1 billion in 2008 sales for Warner
Chilcott. Until now, Warner Chilcott has focused primarily on the
U.S. market, but the purchase will expand its presence in
Europe.
Six banks, led by J.P. Morgan Chase & Co. (JPM) and Bank of
America Corp. (BAC), were expected to put up as much as $4 billion
in financing for the deal, The Wall Street Journal reported Sunday.
That would make it the largest leveraged loan - or one that is made
to a borrower with a credit rating below investment-grade - in more
than a year, potentially signaling that the market for such loans
is loosening.
Some analysts suggested the price Warner Chilcott is paying -
less than two times sales - is a bargain. "I'm surprised to see
such a good price here," Roth Capital Partners analyst Scott Henry
said on a conference call hosted by Warner Chilcott executives.
That price could reflect the fact that drugs Asacol and Actonel
won't be permanent cash generators for Warner Chilcott - their U.S.
patents expire in the mid-2010s and there is always the possibility
of early generic challengers. Still, P&G also has a pipeline of
experimental drugs that could contribute down the line.
For P&G, whose shares recently were down 0.8% at $53.16, the
acquisition will result in a one-time gain of $1.4 billion, or 44
cents a share. P&G also expects earnings dilution of at least
10 cents to 12 cents a share this fiscal year and up 18 cents
annually thereafter because of lost profit and remaining overhead
costs from the unit. Sanford Bernstein analyst Ali Dibadj said the
dilution estimates were higher than expected.
The divestiture fits in with P&G's recent moves to divest
operations that are slower growth or that don't fit in with its
main businesses. Major success in the pharma industry has eluded
the consumer-products giant, which had only a few major drugs in
its portfolio. P&G is holding on to over-the-counter products
like heartburn treatment Prilosec OTC.
The deal is the company's first under newly appointed Chief
Executive Bob McDonald, who took the helm in early July. Speaking
to investors on a conference call, McDonald left open the
possibility of a further pruning of the company's businesses.
-Jeffrey McCracken of The Wall Street Journal, and Peter Loftus,
Anjali Cordiero and Tess Stynes of Dow Jones Newswires contributed
to this story.