Acquisitions have formed an integral part of Actavis plc’s (ACT) expansion strategy with the company completing four major acquisitions in the past few years. These include the Arrow, Specifar, Actavis Group and Warner Chilcott acquisitions.
We view the Dec 2009 Arrow acquisition as a positive move -- it has helped Actavis expand its footprint in ex-U.S. territories, especially in countries like Australia, New Zealand, Brazil, Scandinavia, Germany, Central and Eastern Europe, Turkey, Japan and South Africa. It has also boosted Actavis’ product offerings and pipeline. The acquisition has also provided Actavis with operational expertise and manufacturing capability needed to support its long-term investment in biogenerics.
Meanwhile, Actavis enhanced its commercial presence in key European markets and strengthened its foothold in the Greek pharmaceutical market through the May 2011 Specifar acquisition.
The Oct 2012 acquisition of Actavis Group is a smart strategic move. This deal has helped the company strengthen its presence in the ex-U.S. generics market and expanded and strengthened its product portfolio.
We are also positive on the recently concluded $8.5 billion stock-for-stock Warner Chilcott acquisition which makes strategic and financial sense. The successful completion of this deal in early October 2013 has resulted in the creation of a leading global specialty pharmaceutical company with combined annual revenues of about $11 billion. The combined company holds the third position in the U.S. specialty pharmaceutical market with annual revenues of about $3 billion.
The acquisition is expected to be accretive to Actavis’ 2014 earnings per share by more than 30%. The company expects to achieve post-tax operational synergies and related cost reductions and tax savings of more than $400 million. Moreover, it will provide strong operating cash flow and allow Actavis to de-lever its balance sheet. The tax rate will also be significantly below current levels.
Additional details will be available on Actavis’ third quarter earnings call on Oct 29. Actavis currently carries a Zacks Rank #3 (Hold). At present, Akorn Inc. (AKRX), Mylan (MYL) and Dr. Reddy’s Laboratories (RDY) look attractive. While Akorn is a Zacks Rank #1 (Strong Buy) stock, Mylan and Dr. Reddy’s are Zacks Rank #2 (Buy) stocks.