Over the counter drug maker Perrigo Company (Nasdaq:PRGO; TASE:PRGO) today signed a definitive merger agreement to acquire PBM Holdings Inc., a leading store-brand infant formula manufacturer, for $808 million in cash. Perrigo will finance the acquisition with $175 million of cash on hand, $300 million available under the terms of its existing debt agreements, and the balance with new debt financing. The company has received a bank bridge financing commitment for up to $350 million.
Perrigo believes that the acquisition of PBM will boost its annual sales by $300 million, increase its GAAP-based earnings per share by $0.10 in fiscal year 2011, and to surpass the return on investment in fiscal year 2012.
Analysts currently predict that Perrigo will report non-GAAP earnings per share of $2.50 on $2.3 billion revenue in its 2010 fiscal year.
Perrigo expects to close the deal in its fiscal 2010 fourth quarter pending regulatory approval.
Virginia-based PBM's store brand infant formula and baby foods sold by leading retailers in the mass, club, grocery and drug channels in the US, Canada, Mexico, and China. Perrigo chairman and CEO Joseph Papa said, "This acquisition positions Perrigo to expand its store brand market leadership into another important product category for our retailers. Just as Perrigo developed the OTC store brand market over the last several decades, PBM created the store brand value proposition within the highly regulated infant formula space. We believe that PBM's mission to provide families with high quality, state-of-the-art formulas at sensible prices complements perfectly Perrigo's mission to deliver quality, affordable healthcare to consumers."
Perrigo's share closed at $51.13 on Nasdaq yesterday, giving a market cap of $4.66 billion. The share price rose 1.1% by early afternoon on the TASE today to NIS 193.80.
IBI Investment House analyst Natalie Gottlieb says that the acquisition of PBM is a big deal for Perrigo, which will give the company a great leap forward and add another growth engine. She notes that the company has a 75% share of the store brand over the counter (OTC) drug market in the US.
The acquisition expands Perrigo's basket of products to a whole new field, a field that requires expertise, the maintaining of very high quality, and control of the supply chain, all of which PBM gives the company. Store brand baby food products are growing more slowly than other OTC products marketed by Perrigo. This means that revenue growth should come from expanding the basket of products that Perrigo offers customers.
Gottlieb adds that PBM's sales outside the US give Perrigo another opportunity to expand in these markets. Perrigo has a presence in Mexico, but has not expanded its sales there. The company's presence in Canada and China is insubstantial, so the acquisition creates opportunities in both markets.
Gottlieb sums by giving Perrigo a "congratulations". The company is evolving, linking its generic drugs to a field with similar features to those of the company. Perrigo's expertise in quality control and control of the value chain will come into play in the new business, and that PBM's non-US markets will give Perrigo new growth opportunities.
Published by Globes [online], Israel business news - www.globes-online.com - on March 23, 2010
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