Global Insight Perspective | |
Significance | The offer is still potentially on the table despite Alpharma board of directors' rejection as King Pharma observed that it may exercise the option of approaching stockholders directly. |
Implications | The target firm will help mitigate some of the top-line growth challenges faced by King Pharmaceuticals, namely its product Altace (ramipril). |
Outlook | The timing and execution of this announcement indicates that a potential deal could be in place in the short term. The deal reflects further consolidation in the pharmaceutical market. |
U.S. pharma firms King Pharmaceuticals and Alpharma were engaged in a merger and acquisition (M&A) scenario earlier in August. The takeover offer was made at US$33 a share, amounting to US$1.43 billion for the total consideration. The Wall Street Journal quoted King Pharma's chief executive Brian Markinson as describing the takeover as a "friendly deal". Nevertheless, Alpharma rejected the bid altogether. This has not dissipated King Pharma's ambitions as a potential deal is still envisaged by the top management at King Pharma. The proposal is subject to the negotiation of a mutually acceptable merger agreement and due diligence, all of which King Pharma hopes to complete before the end of 2008 if the deal still goes ahead. The firm has in its most recent letter to Alpharma's board of directors not only reiterated the proposal but also mentioned that it was prepared "to take this offer directly to your (Alpharma's) stockholders".
By acquiring the target firm, King Pharma expects to inherit a product portfolio targeting the pain-management segment—morphine-based, extended-release Kadian and the Flector Patch (diclofenac epolamine). The Flector Patch has been approved for the treatment of acute pain due to minor strains, sprains, and contusions. King Pharma is also expecting to gain a sizeable animal health division to bolster top-line growth. In the six months ended 30 June 2008, Alpharma reported total revenues of US$324.4 million registering a 29% year-on-year rise. Pharmaceuticals garnered operating revenues of US$147.3 million in the six-month period.
Outlook and Implications
The timing of the takeover offer disclosure by King Pharmaceuticals suggests that the firm is still optimistic of a potential deal to be executed shortly—within the end of 2008. The proposal itself reflects two times Alpharma's annual revenue and, as has been observed by the Wall Street Journal, a 37% premium of its Thursday (21 August) closing price at the U.S. bourses. King Pharma's persistence with the deal will most likely also reflect investor sentiment. It is interesting to note here that King Pharma was itself a takeover target from Mylan Inc—which did not materialise—in 2005.
The primary reason for the acquisition proposal by King Pharma is to diversify and strengthen its current product offerings. Since early 2007, King Pharma's blockbuster products Altace (ramipril) and Corzide (bendroflumethiazide/nadolol) have faced generic competition (see United States: 3 April 2007: King Pharma's Corzide Faces Competition as FDA Approves Impax Generic see United States: 13 September 2007: King to Fight Altace Patent Ruling). By acquiring Alpharma, the U.S. firm is seeking to make its position in the pain-management therapeutic segment fruitful.
The development embodies a phase of rapid consolidation in the pharmaceutical market occurring in several rungs of the industry. Although so far Big Pharma firms such as Pfizer, Roche, and Bristol Myers Squibb have looked to acquire mid-sized or small firms to strengthen their niche market—therapeutic segment, product, or geographical—presence, the potential for a merger between King Pharma and Alpharma would help to establish size and bolster product portfolio.