Teva to purchase Allergan’s generic drugs unit for $40.5 billion

Israeli company to become one of the world's largest pharmaceutical firms after purchsing Allergan's generics unit for $40.5 billion. 

Teva Pharmaceutical Industries, the world’s largest generic drugmakaer, agreed on Monday to buy Allergan’s generics unit for $40.5 billion in cash and stock in a deal that will turn the Israeli company into one of the world’s largest pharmaceutical firms.

The deal, the largest in Israel’s corporate history and one of the latest in a wave of consolidation in the drug industry, will see Allergan receive $33.75 billion in cash and Teva shares valued at $6.75 billion, giving it a 10% stake in Teva.

The deal will give Teva increased scale in the competitive generic-drug market and allow it to pursue further cost reductions that could help it cope with the end of a wave of large patent expirations.

Allergen – formerly Actavis – established itself in Malta in 1975 and employs around 750 workers in its two plants in Bulebel and Hal Far. Its plants in Malta produce around four billion capsules every year.

Teva shares rose 12% to $69.35 in midday trading, while Allergan shares Allergan shares added 7.3% to $330.6“What we are doing here will enable Teva to be one of the winners of the ever-changing pharmaceutical industry,” Teva chief executive Erez Vigodman said in an interview.

The deal prompted Teva to drop its $40 billion bid for Mylan, which had hit a snag when the company set up a Dutch foundation that bought temporary control of hald the company in an attempt to block the takeover. Teva said that it now plans to review its options with respect to the approximately 4.6% of Mylan stock that it owns.

Following the deal announcement, Mylan shares fell nearly 14% to $57.03.

The deal will provide Allergan with cash to repay its debt and allow it to focus its attention on lucrative brand-name drugs.

"If you look at what we've been doing, it's always been about moving up the value chain, moving up the margin, innovation chain of pharmaceuticals," Allergan CEO Brent Saunders told CNBC. "This really just moved that up further."

In March, the company once known as Actavis bought Allergen and took on the acquiree’s name, and the deal left Allergan with roughly $42 billion in debt. Saunders said that the proceeds from the Teva acquisition should account to $36 billion after tax, leaving the company with essentially no net debt, when factoring in the free cash flow it generates.

"When you think about it, we weren't going to be a consolidator of the generic business,” Saunders said. “We've always said that. We weren't going to be a buyer of future generics. We were going to be a buyer of brands.

"Teva is a natural consolidator. This is their legacy. They're very good at it. They have global scale."