(Reuters) - Drugmakers Valeant Pharmaceuticals International Inc, Actavis Plc and Mylan Inc have all expressed interest
in buying Pfizer Inc's branded generics business, but no active discussions are going on at this time, according to three
people close to the matter.
The "established products" unit, which makes off-patent drugs,
had global sales of $7 billion in the first nine months of 2013, accounting for
18 percent of Pfizer's revenue. Pfizer said in July it planned to separate its
commercial operations into three units -- two mainly for patent-protected
brands and the third for generics.
According to the people close to the matter, Pfizer is aware of each of the
companies' interest but is not yet ready to entertain a deal as it prepares the
groundwork for a potential separation of the generics business. It has said the review could take three years.
Pfizer, Valeant, Actavis and Mylan all declined to comment. All the sources
asked not to be named because they were not authorized to speak with the media.
A deal for the business -- which houses medicines that have lost market
exclusivity, as well as mature, patent-protected products that are expected to
lose exclusivity through 2015 -- could catapult a buyer like Valeant into the ranks
of the biggest pharmaceutical companies in the world, but several hurdles
remain.
The Pfizer generics business is far bigger than the three pharmaceutical
companies.
Valeant had $3.7 billion in revenue in the first nine months of 2013, while
Mylan and Actavis posted revenues of $5.10 billion and $5.9 billion,
respectively.
Structuring a deal would also be a challenge because a sale could incur
heavy taxes for Pfizer. One way to reduce the tax bill would be to use a
structure known as a Reverse Morris Trust, according to the people close to the
matter.
In that structure, a company spins off a unit that it wants to divest and
that unit merges with a smaller company, with the smaller company running the
combined entity. Overall, the transaction allows a parent company to sell a
subsidiary in a tax-free manner.
It is not clear whether Pfizer would entertain such a deal structure.
Another challenge for potential buyers is the lack of historical financial
information for the generics business, as Pfizer's efforts to split its
commercial operations is a work in progress.
Still, such a deal could be attractive, as it could immediately boost the
buyer's earnings and increase its presence outside of North America, most importantly in
emerging markets where many companies need to expand.
Valeant has kept no secret of its desire to grow through acquisitions. Its
chief executive officer, Michael Pearson, said this month that the company wants
to become one of the world's top five pharmaceutical companies by market
capitalization by the end of 2016, largely through acquisitions.
Pearson also said that Valeant, which bought contact lens maker Bausch
& Lomb Holdings Inc for $8.7 billion in August, is looking at a merger of
equals as well as smaller deals. He said it will look this year to pull off one
acquisition of a similar size as its Bausch purchase.
Valeant also held talks with Actavis about a potential combination last
year, although those discussions did not lead to a deal, according to media
reports at the time.
Meanwhile, Actavis completed a $8.5 billion deal to buy Warner Chilcott Plc
in October, months after rejecting a takeover offer from Mylan.
