Watson Pharma Gets Actavis at 'Generics' Price

NEW YORK (TheStreet) -- Watson Pharmaceuticals(WPI) has bought Actavis for roughly $5.6 billion, paying $1 billion less for the Swiss generic drug maker than initial M&A rumors had suggested.

The merger will make Watson Pharmaceuticals the world's third largest generics drugs maker with a combined revenue of $8 billion, while increasing its international presence. In unveiling the deal, Watson also said that a combination of synergies and growth opportunities will make the merger additive to earnings in coming years.

"Actavis dramatically enhances our commercial position on a global basis and brings complementary products and capabilities in the United States," said Watson Pharmaceuticals CEO Paul M. Bisaro, in a statement. "In a single, commercially compelling transaction, we more than double Watson's international access and strengthen our commercial position in key established European markets as well as exciting emerging growth markets, including Central and Eastern Europe and Russia."

Actavis operates in 40 countries and markets more than 1,000 products globally. In 2011, the company had roughly $2.5 billion in revenue. The company makes generic versions of Ritalin, a drug to treat attention deficit disorder and Ambien, a sleeping pill. Watson Pharmaceuticals meanwhile produces generic versions of Pfizer's(PFE) Lipitor.

Watson's purchase price is roughly 20% less than initial reports. On March 21, Reuters first reported that a prospective deal could be cut at an estimated 5.5 billion euros or $7.3 billion. Since those reports, Watson Pharmaceuticals shares have rallied on expected cost synergies and growth prospects. Shares rallied nearly 6% in after-hours trading on Wednesday, signaling that investors welcomed the lower than previously reported purchase price of Actavis.

The deal is structured so that the company will an make initial cash payment of 4.25 billion euros $5.6 billion and will deliver a performance payment of up to 5.5 million shares in its common stock at a value of $60 in 2013 if all M&A targets are met. That would push the deal to roughly $5.9 billion.

Analysts mirrored the company's bullish sentiment.