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Perrigo Buys Velcera

Zacks Equity Research

The spate of acquisitions at Perrigo Company (PRGO) continued with its purchase of companion animal health company, Velcera, Inc. for approximately $160 million in cash.

The deal, which has strengthened Perrigo’s position in the over-the-counter (:OTC) retail pet healthcare market, looks good to us. The acquisition adds the erstwhile Velcera’s PetArmor franchise of Flea and Tick therapies to Perrigo’s product portfolio. Perrigo stated in its press release that the retail sales of the franchise were more than $100 million during calendar year 2012. The franchise was launched in Apr 2011.

Perrigo expects the acquisition to boost its adjusted earnings slightly in fiscal 2013. Perrigo expects adjusted earnings for fiscal 2013 in the range of $5.53 – $5.73 per share. The company’s fiscal year ends on the last Saturday of June every year. The transaction is expected to boost Perrigo’s adjusted earnings in fiscal 2014 by 11 cents per share. The deal is expected to be accretive to ROIC in fiscal 2015.

We note that Perrigo has been quite active on the acquisition front lately. In Dec 2012, Perrigo acquired privately-held Cobrek Pharmaceuticals, Inc. for approximately $45 million in cash. In Oct 2012, Perrigo acquired the entire assets of privately-held Sergeant's Pet Care Products, Inc.

Perrigo, which develops, manufactures and distributes OTC and generic prescription pharmaceuticals among others, carries a Zacks Rank #2 (Buy). Another player in the generic market Mylan Inc (MYL) also carries a Zacks Rank #2. Meanwhile, pharma stocks such as Athersys, Inc. (ATHX) and Osiris Therapeutics, Inc. (OSIR) carry a Zacks Rank #1 (Strong Buy).

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