Today (March 18) Teva Pharmaceutical Industries (TEVA) announced an agreement to buy Germany’s Ratiopharm for $5 billion in cash. Privately-owned Ratiopharm is Germany’s second largest maker of generic medicines—and the sixth largest generic drug company in the world. The deal, in which Israel-based Teva beat out Pfizer (PFE) and Actavis Group, will advance Teva from No. 5 to No. 2 in the German market for generic drugs. The German market is the second-largest market for generics in the world next to the United States.
Teva has a good record with acquisitions with actual cost-savings usually exceeding those projected at the time of the deal.
The deal meets Teva’s criteria that any acquisition add to earnings within the first 12 months. In this case the company projects $400 million in cost savings within the first three years and accretion to earnings within nine-months.
A by no means insignificant benefit of the deal is that it keeps Ratiopharm out of the hands of competitors such as Pfizer.
As of March 18 I’m upping my target price on Teva Pharmaceutical to $66 by October from the earlier target of $61 by that month.
Full disclosure: I do not own shares of any company mentioned in this post in my personal portfolio.