Procter & Gamble on Monday refocused on its core consumer health business with the $3.1bn divestment of its pharmaceuticals division to Warner Chilcott, the Irish-domiciled specialty drugs company.
The transaction, to be funded by debt, brings to an end P&G’s move into the highly competitive medicines sector while more than tripling the scale of Warner Chilcott, which has focused on women’s healthcare and dermatology products.
It follows a strategic review announced by P&G last December which considered continued operation, alliances or the sale of the pharmaceutical division, during a period that the US company recently described as ”one of the most difficult macroeconomic environments in decades”.
The deal comes as a number of large pharmaceutical companies including GlaxoSmithKline and Novartis have increased up their own investments in non-prescription consumer healthcare products as they seek to diversify from the uncertainties of new drug development while existing products come off patent.
With the pharmaceuticals division generating net income for P&G in the year to June 30 of $540m on sales of $2.3bn, Jon Moeller, chief financial officer, moved to reassure analysts in a conference call that the relatively low multiple on the deal reflected the ”finite patent lives” of the products being sold.
He stressed that the deal was ”attractive” for shareholders and provided additional funding for future investments and dividend payments, as well as share repurchases. It will generate a one-time earnings increase of $1.4bn after tax, with earnings per share dilution of 10-12 cents per share in fiscal year 2010.
Roger Boissonneault, the head of Warner Chilcott, said in a statement: ”The acquisition transforms Warner Chilcott into a global pharmaceutical company.”
The deal allows Warner Chilcott, which reported net income of $364m last year on sales of $938m, to expand in the US and strengthens its range of urology drugs with P&G’s medicines for bladder problems, colitis and osteoporosis.
The deal is set to close by November 1 and the majority of the 2,300 workers in P&G’s pharmaceuticals business are expected to transfer to Warner Chilcott.
Shares of P&G rose by 0.45 per cent to $53.82 in early trading on Monday. Warner Chilcott’s stock jumped by 24.32 per cent to $19.97.
Warner Chilcott was bought for $3bn at the end of 2004 by a group of investors led by Bain Capital, restructured and requoted on Nasdaq, and redomiciled in Ireland earlier this month.
P&G’s banking adviser on the deal was Goldman Sachs and its lawyers were Covington & Burling. Warner Chilcott was advised by JP Morgan and Morgan Stanley, and the lawyers Davis Polk & Wardwell.
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