Watson Pharmaceuticals Inc. (WPI) has agreed to acquire privately held drug maker Arrow Group in a $1.75 billion cash and stock deal, which will expand Watson's global reach and give it exclusive initial U.S. rights for the generic version of the cholesterol-lowering drug Lipitor.
The deal, expected to close by year's end and add to 2010 earnings, comes as larger pharmaceutical companies have been seeking to bolster their drug pipelines through acquisitions, and smaller companies have needed stronger partners amid falling revenues and constrained credit.
The deal will include $1.05 billion in cash, $500 million of common stock and $200 million of preferred shares redeemable three years after the deal closes. Arrow's owners will also receive additional contingent payments based on generic Lipitor sales.
At current prices, the common stock issued would be 16.9 million shares; Watson has about 118.2 million outstanding.
The combination with Arrow will result in a global pharmaceutical company with more than $3 billion in revenue and operations in more than 20 countries, Watson said. Arrow generated $647 million in revenue last year, and has had a 67% organic compound annual growth rate since 2001, Watson said. The company was founded in 2000.
It also gives Watson a foundation in generic biologics, owing to Arrow's 36% ownership of biopharmaceutical company Eden Biodesign. Arrow founder and Chief Executive Tony Tabatznik is expected to join Watson's board of directors.
Moody's Investors Service last month raised its rating outlook on Watson to positive, hinting that a possible upgrade to investment-grade territory could come in light of strength at the company's generics business and recent approvals of two drugs, Rapaflo and Gelnique.