Pfizer Inc.; market cap (as of 20/02/2015): US$217.75bn
Hospira Inc.; market cap (as of 20/02/2015): US$14.97bn
Introduction
On February 5th, 2014, pharmaceutical behemoth Pfizer signed with Hospira, the world’s leading provider of injectable drugs and biosimilars, a definitive merger agreement which consists of the fully acquisition of Hospira for US$90 per share, thus valuing the company approximately US$17.0bn. The deal is expected to enhance the scale of Pfizer’s already well-established biosimilars and sterile injectable businesses which are projected to be a profitable market globally in the near future, as biotech drugs, accounting for more than US$100.0bn of sales today, are expected to lose their patent protection in the next few years.
About Pfizer
Pfizer is a New York based multinational pharmaceutical company. The company develops and produces different types of medicines for a wide range of medical specialties such as immunology, cardiology, endocrinology and neurology. In particular, Pfizer’s portfolio includes human biological and molecular medicines and vaccines for people and animals. There are currently over 80 different research and development projects in the company’s pipeline, the majority of which focuses on solutions for cardiovascular diseases, oncology, neuroscience and rare illnesses. At the end of 2014, Pfizer was ranked as the world’s largest pharmaceutical company with annual sales revenue of US$49.6bn.
About Hospira
Hospira is an American based pharmaceutical and medical device company. It is the worldwide leader in providing and manufacturing injectable drugs as well as infusion technologies. Its main products include specialty injectable, biosimilars, infusion therapy solutions and third contract manufacturing. These products are targeted towards Hospira’s main customers, which include hospitals, medical clinics, home healthcare providers and long-term care facilities.
Deal Structure
The transaction value of US$17.0bn, which includes US$1.75bn outstanding debt of Hospira, represents a 39% premium to Hospira’s one-day prior closing price and implies a 2014E EBITDA multiple of roughly 15x. Pfizer is planning to finance two-thirds of the value with cash and one-third of the value with debt. According to the press release, Pfizer will achieve US$800m in cost savings by 2018. Indeed, the deal will be immediately accretive with an estimated impact on the combined company’s full year earnings of US$0,10-0,12 per share. Closing is expected by the second half of 2015, depending on the approvals of regulators in several jurisdictions as well as Hospira’s shareholders.
Deal Rationale
The transaction is expected to support Pfizer in increasing its footprint in the Generic Injectable Medicines market thanks to the established market position of Hospira. In fact, the transaction will help Pfizer’s Global Established Pharmaceuticals business to sustain growth and add another revenue stream by expanding company’s product portfolio of sterile injectable pharmaceuticals and biosimilars. “The Pfizer-Hospira combination is an excellent strategic fit, presenting a unique opportunity to leverage the complementary strengths of our robust portfolios and rich pipelines,” said F. Michael Ball, CEO of Hospira. However this transaction deals inevitably with the last year US$117bn attempted takeover of AstraZeneca: if on the one hand Hospira doesn’t bring the AstraZeneca’s attractive pipeline of pioneering treatments, on the other the transaction brings different advantages to Pfizer. In fact, the deal fully respects the US White House pressing measures implemented to reduce the “tax inversion”, that was one of the major drivers of the acquisitions made the last year by US companies, which shifted their headquarters abroad to gain from a more favorable tax regime. In addition, as Pfizer’s CEO Ian Read pointed out, his company is now “biased toward deals with the potential for creating value in the near term” and the accretive acquisition of Hospira looks a reasonable transaction that not only boost Pfizer’s revenues into its established pharmaceuticals business but brings also a significant growth perspective for the potentialities of the biosimilar market. This argument, in particular, leads to another motive that may have incentivized the transaction: a near break-up of Pfizer into three, with a division selling generic drugs significantly strengthened by the new entry Hospira and two other units focused on innovative medicines.
Looking Forward
Although this deal seems a robust choice to support Pfizer hesitant financial performances and also less politically controversial, it has to be seen if in the future Pfizer will look at this kind of straightforward transactions or if it is still aiming to close a more massive deal, in the wake of the AstraZeneca’s one. Indeed, the latter hypothesis seems realistic: Mr Read signaled that bigger deals, potentially overseas, are not excluded if they make financial sense and Pfizer undoubtedly has enough financial firepower to fund another transformational transaction.
Financial advisors
Morgan Stanley served as Hospira’s financial adviser. Pfizer was advised by J.P. Morgan, Lazard and Guggenheim Securities.
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