Last updated: August 24, 2009 6:58 pm

Warner Chilcott / P&G

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Transformation is an overused word in dealmaking, and chief executives tend to forget the term’s ambiguity – equally meaning bureaucrat to beetle as caterpillar to butterfly. But Warner Chilcott, the Irish-domiciled and Nasdaq-listed drugmaker, has achieved the latter with Monday’s announcement of the $3.1bn cash purchase of Procter & Gamble’s prescription pharmaceuticals arm.

Chilcott is taking over a business with more than twice its $1bn of annual sales, gaining access to 14 new markets, so turning the group into a global drug manufacturer. Perhaps reflecting the legacy of a company that was in private equity ownership before its 2006 listing, and is still majority owned by buy-out funds, there was also a refreshing honesty from management on the benefits of the deal. Rather than cost savings, the integration will likely require additional spending to manage the greater complexity of expanded international operations.

The price is reasonable, reflecting the loss of patent protection for key drugs over the next decade. At less than six times earnings for the year just ended, a valuation at the low end of market expectations, the deal prompted Chilcott’s shares to rise by a quarter to an all-time high.

For P&G the long-expected sale is more shrug-worthy. Prescription drugs represented less than 4 per cent of the consumer goods company’s sales and 5 per cent of profits. The price received is unexceptional, but the conclusion of the process removes a distraction for new chief executive Robert McDonald. His central challenge remains returning to growth a company that finds its collection of expensive products unsuited to life in recession, without sacrificing the decent profitability that high prices has so far produced. Unfortunately, such grinding work is far harder than overnight transmogrification.

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