P&G Exits Pharmaceutical Industry

2009-08-24 | 01:04

Sells unit to Warner Chilcott for an up-front cash payment of $3.1 billion.

Procter & Gamble has sold its pharmaceutical unit to Warner Chilcott, a specialty pharmaceutical company based in Ireland,for $3.1 billion. The business had revenues of approximately $2.3 billion, and net income of approximately $540 million for the year ended June 30, 2009.

"This move enables us to focus singularly on winning in consumer health care—personal health care, oral care and feminine care," said Bob McDonald , president and chief executive officer of Procter & Gamble.

And how will P&G spend its new-found fortune? Industry consultant and Happi columnist Colin Hession has a few ideas.

“The obvious acquisition for P&G in oral care is Unilever’s toothpaste business, which is ranks No. 3 in Europe nad is strong in some other regions, notably certain Asian countries, but it’s probably a no-no because of the long held rivalry between the big soapers," observed Mr. Hession. "Unusual for P&G, they are back-markers in European toothpaste, with only around a 7% share spread over several different brands."

According to Mr. Hession, a second choice would be Henkel’s European toothpaste business, which ranks No. 4 with brands like Theramed, "and goodness knows, Henkel needs to rationalize its over-stretched battle line in HBA,” he added.

Mr. Hession's consultancy focuses on beauty rather than health care, but he pointed out that Pfizer has either sold most of its best health care brands to J&J, or picked up the remainder with its latest merger with Wyeth—assets like Chapstick.

"So there ain’t a whole lot left for P&G to augment its rather thin lineup of Clearblue, Matamucil and Pepto," he observed.

Finally, in beauty, Mr. Hession suggested that P&G ought to snap up the small, but only decent brand in the male hair care segment, Colomers's American Crew, owned by private equity company, CVC.

"(P&G) would then own the high ground in the category, which they could go on to develop like they've done with Pantene," he said.

The portfolio of branded pharmaceutical products includes Asacol HD (mesalamine) Delayed-Release Tablets for ulcerative colitis, Actonel (risedronate sodium) for osteoporosis, and the co-promotion rights to Enablex (darifenacin) for the treatment of overactive bladder, as well as P&G's prescription drug product pipeline and manufacturing facilities in Puerto Rico and Germany. In addition, the majority of the 2,300 employees working on P&G's pharmaceuticals business are expected to transfer to Warner Chilcott. Both companies expect the transaction to close by the end of the 2009 calendar year, pending necessary regulatory approvals.

"The acquisition of the P&G pharmaceutical brands and employee talent is a transformational, strategic move for us," said Roger Boissonneault , president and chief executive officer of Warner Chilcott. "The acquisition transforms Warner Chilcott into a global pharmaceutical company, expands our presence in women's healthcare, establishes us in the urology market in advance of the anticipated launch of our erectile dysfunction treatments, and adds gastroenterology therapies to our product portfolio."

The sale of P&G's pharmaceuticals business to Warner Chilcott for a price of $3.1 billion will result in a one-time earnings increase for P&G of approximately $1.4 billion after-tax, or approximately $0.44 per share. P&G also said it expects EPS dilution in the range of $0.10 to $0.12 per share in fiscal year 2010 due to the lost earnings from the business and stranded overhead costs. These figures assume the transaction will close on November 1, 2009. P&G said that annualized EPS dilution would likely be in the range of $0.16 to $0.18 per share. The specific timing for the completion of the transaction will be subject to certain regulatory approvals and other conditions set forth in the purchase agreement. If the actual closing timing differs from the date noted above, there will be adjustments to the sale price, per the agreement between the companies. Updated financial impacts will be provided when the transaction is completed.

For Warner Chilcott, the acquisition expands its presence in existing specialty pharmaceutical markets and provides access to new physician offices in 14 countries. In addition, Warner Chilcott will acquire P&G's pharmaceutical development capabilities and clinical pipeline, which is expected to broaden Warner Chilcott's product portfolio in future years. On a preliminary, unaudited basis, Warner Chilcott intends to finance the acquisition with debt proceeds and has received commitments from a group of lenders to provide senior secured debt facilities and a senior unsecured bridge facility.