Drugmaker Pfizer Inc. (PFE, Financial) announced on Monday it is combining its off-patent drug business, which is called Upjohn, with Pittsburgh-based generic pharmaceutical giant Mylan NV (MYL, Financial) in an all-stock deal, creating a new company.
According to the terms of the agreement, each share of Mylan will be converted into one share of the new company, which will be domiciled in the U.S. and renamed and rebranded upon closing. The deal will be structured as a reverse Morris trust, in which Upjohn will be divested from the New York-based company and then combined with Mylan.
Once the deal closes, Pfizer shareholders will own 57% of the newly combined company, while Mylan shareholders will own 43%.
The combined company, which will sell Mylan’s EpiPen and Pfizer’s Viagra, is expected to generate $19 billion to $20 billion in annual sales on a pro forma basis. It will be led by Pfizer’s Michael Goettler, who is currently president of Upjohn. Mylan Chairman Robert Coury will be executive chairman, while Rajiv Malik, current Mylan president, will serve in the same capacity at the new company. Mylan CEO Heather Bresch will retire after 27 years with the company. Chief Financial Officer Ken Parks has agreed to depart after the deal closes as well.
In a statement, Coury said the new company will “not only accelerate our mission to serve the world’s changing health needs, but also further unlock the true value of our platform while delivering attractive returns to shareholders for many years to come.”
“This combination also further accelerates Mylan’s longstanding strategy to create the operational scale and commercial capabilities necessary to provide the world’s more than 7 billion people with access to medicine,” he added. “As important, the transaction we are announcing today will enhance the strength of our balance sheet by scaling and increasing our existing strong cash flows, providing the new company with the financial flexibility to support and accelerate deleveraging and the expected initiation of a meaningful dividend from the first full quarter after the transaction closes.”
In addition, at or prior to its separation, Upjohn will issue $12 billion in debt. After the deal closes, the new company will have about $24.5 billion in total outstanding debt.
Following the announcement, shares of Pfizer were down 2.25% at $42.12. In contrast, shares of Mylan were up 14.14% at $21.07. Year to date, GuruFocus estimates Pfizer has declined 4%, while Mylan has tumbled 26%.
According to the GuruFocus Industry Overview page, behind Johnson & Johnson (JNJ, Financial), Pfizer is the second-largest company in the drug manufacturers space. Other top players in the sector include Merck & Co. (MRK, Financial), Amgen Inc. (AMGN, Financial), Eli Lilly and Co. (LLY, Financial), AbbVie Inc. (ABBV, Financial), Gilead Sciences Inc. (GILD, Financial), Bristol-Myers Squibb (BMY, Financial), Celgene Corp. (CELG, Financial) and Zoetis Inc. (ZTS, Financial).
Gurus invested in Pfizer who may benefit from the transaction include Ken Fisher (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Pioneer Investments (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Richard Pzena (Trades, Portfolio), among others. Guru shareholders of Mylan include the Vanguard Health Care Fund (Trades, Portfolio), John Paulson (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Francisco Garcia Parames (Trades, Portfolio).
The deal is expected to close in mid-2020.
Disclosure: No positions.
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