When Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) announced its acquisition of Barr Pharmaceuticals Inc. (NYSE: BRL), Teva's executives stressed that the company would still have at least $1 billion in cash after the acquisition was completed, in order to maintain a strong balance sheet as well as to have cash on hand to take advantage of more acquisition opportunities.
On one hand, the acquisition of a company for a few billion dollars even before a previous $9 billion takeover has been completed sounds a bit problematic. On the other hand, Teva is known for its ability for successful integrations of the companies it buys. More important, however, and the fact that can explain Teva's desire to acquire German generics maker Stada Arzneimittel AG (XETRA: SAZ) is actually an accounting matter: Teva will be able to take a write-off for R&D after the takeover.
There is a loophole in US law which will be closed in 2009: companies can make a one-time write-off for R&D when they complete an acquisition. This write-off greatly reduces the risk of subsequent large write-offs, and basically makes it possible for companies to publish improved financial reports later on.
Teva used this loophole to make a $380 million write-off in the first quarter of 2008 after it completed the acquisition of CoGenesys Inc., amounting to nearly 95% of the purchase price.
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2008
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