Terms didn’t fit stringent acquisition criteria: Teva

JERUSALEM: Teva Pharmaceutical Industries said on Sunday it stopped pursuing the purchase of the generics unit of German drugs and chemicals group Merck KGaA because the terms didn’t fit its acquisition criteria.

“Teva’s long-held practice is to only pursue transactions that fit our long-term strategy of delivering profitable growth and enhancing our global leadership position while meeting our stringent financial criteria,” Teva said in a statement. “While Merck’s generics business would have been a strategic fit for Teva, the terms of this opportunity did not fully meet our investment criteria,” it added.

“It is probable that Teva gave up the acquisition ... due to the high price and diluted influence on its earnings per share,” Limor Gruber, an analyst at the Psagot Ofek brokerage, wrote in a research note, adding she saw upside to Teva’s shares as long as the company’s revenues continued to grow. Shares of Israeli-based Teva, the world’s largest generics drugmaker, were up 0.9% in afternoon trading in Tel Aviv to outpace gains of 0.4% on the broader bourse.

Uncertainty during the bidding process has been weighing on Teva’s shares. Analysts said the market was somewhat cautious and a clearer reaction from investors would come when its Nasdaq-listed shares resume trade on Monday. Those shares rose 3.9% to $39.95 on Friday.

“It’s a mixed bag as far as Teva’s stock price goes,” said Richard Gussow, an analyst at the Tel Aviv brokerage of Excellence Nessuah. “There is disappointment Teva didn’t get it but there is relief Teva didn’t pay too much for it either.”

Teva, with a market value of $31 billion and eager to expand into the growing German generics market and maintain its top spot in the industry, was widely believed to be the favourite and best placed to buy Merck’s generic business over the much smaller Mylan, which now bought a company bigger than itself.

“Teva needed a foothold in Germany and they don’t have that foothold right now,” Gussow said. “The issue for Teva is price and they felt the price was not worth the additional foothold.” Analysts had argued that buying Merck’s generics business was an opportunity Teva could not turn down since Merck also has sales in other parts of Europe, Japan and Australia.

Gruber, who maintained a $46 price target and “market outperform” rating for Teva’s shares, said a key issue was that Merck would not be accretive to Teva’s earnings for three years. “The fact that Teva didn’t buy Merck will eventually calm investors concerns over the cost of the merger,” Gruber said.