Actavis Continues Consolidation March with Highly Priced Allergan Deal, says GlobalData Director

In response to the news of Actavis's acquisition of Allergan, Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics, says: “Actavis has agreed to purchase Allergan for around $66 billion, in a deal which draws to an end Valeant’s lengthy wrangle to acquire the Botox manufacturer. With one of the year’s other largest deals already under its belt, that of New York-based Forest Laboratories, the addition of Allergan will further cement Actavis’ unwavering growth plans.

“The integration of Allergan and Forest will help grow Actavis to a $22 billion healthcare company in 2015. This is a dramatic elevation from its $8.7 billion revenues recorded in 2013, the year in which Actavis completed the $5 billion acquisition of Warner Chilcott. The total outlay for these three deals comes in at just under $100 billion, an incredible level of investment undoubtedly triggered by the financial cushion afforded by Actavis’ inversion maneuver to Ireland, which was engineered following the purchase of Warner Chilcott.

“The Allergan deal represents a huge premium, heavily dependent on financial engineering. Adjusting Allergan’s long-term cash flow forecast to bring it in line with Actavis’ 17.6% effective tax rate in 2013, considerably lower than Allergan’s 41.1% tax rate over the same period, provides overall savings from the lower tax rate of as much as $15.4 billion.

“Other synergies, notably within R&D and selling, general and administrative expenses, could deliver an extra $17 billion in additional cash flows, meaning the overall contribution from Allergan could exceed $71 billion over a 25-year period. This is undiscounted, however, and the overall accretion from the deal will come down to the kind of financing Actavis has secured to execute this deal.”