Wells Fargo: Proctor & Gamble JV to add $2.1b to Teva's value

Wells Fargo gives Teva an "Outperform" recommendation.

Wells Fargo Securities estimates that the joint venture with Proctor & Gamble Co. (NYSE: PG) will add $2.1 billion market cap to Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) in 2012. Wells Fargo gives Teva an "Outperform" recommendation.

In March, Teva and Proctor & Gamble announced a joint venture leverage Teva's manufacturing of over the counter medications and Proctor & Gamble's marketing and cross-selling via separate global channels. The agreement is due to be finalized by the end of the year, pending regulatory approvals.

Wells Fargo says that the joint venture should become a market leader thanks to a strong product portfolio, an efficient manufacturing network, deep laboratory and R&D expertise, extensive consumer understanding, and go-to-market expertise. It should allow for accelerated product development through prescription drug to over-the-counter switches and new products for existing brands. It should also realize synergies, primarily through manufacturing and advertising scale.

"We believe the largest opportunity is the sale of existing products in new distribution channels, essentially building new country/channel capability much faster and cheaper than either company could independently. In addition, the joint venture provides each company these opportunities with virtually no incremental capital investment."

Wells Fargo estimates that the joint venture could add $1.10-2.34 per share to Teva's valuation in 2012. At Teva's current share price of $38.50, this amounts to 2.9-6.1% - up to $2.1 billion at the high-end estimate. Teva's market cap has fallen 17% since the end of July to $34.3 billion.

Wells Fargo estimates that the joint venture could add $0.59-1.09 per share to Proctor & Gamble's valuation in 2012. The company has a market cap of $170 billion.

Wells Fargo estimates the over-the-counter drug market at $100 billion, and growing by 5-6% a year. It notes that the two companies expect the joint venture to reach $4 billion in annual sales in the second half of this decade. It estimates the joint venture's revenue at $1.65 billion in 2012, and that it will achieve 15% annual growth to reach $4.4 billion by 2012. It estimates the joint venture's net profit at $329 million in 2012, with 18% annual growth to exceed $1 billion by 2019.

Teva owns 49% of the joint venture and Proctor & Gamble owns 51%.

Published by Globes [online], Israel business news - www.globes-online.com - on September 11, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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