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Warner Chilcott Confirms Strategic Review; In Talks With Potential Suitors

04/30/2012 | 07:49pm US/Eastern

--Ireland-based drug maker confirms preliminary talks with potential buyers

--Shares have surged over past week on speculation about a potential takeover

--Company, struggling with soft sales, had been seen as an acquirer

(Updates after-hours share price in third paragraph and patent litigation decision in fourth paragraph)

 
   By Mia Lamar 
   Of  
 

Ireland-based drug maker Warner Chilcott PLC (>> Warner Chilcott Plc) is back at the bargaining table, confirming Monday that it is evaluating options for its business, and is holding preliminary talks with potential buyers.

The maker of women's health-care and dermatology products said in a brief statement that it is exploring "a broad range of strategic alternatives to enhance shareholder value," including a potential sale. No other possible actions were outlined.

Shares, which have soared over the past week amid speculation about a potential buyout, were recently off 2.3% to $21.30 after hours. Through the close, the stock is off 5.4% over the past 12 months.

Separately, Warner Chilcott reported late Monday that the U.S. District Court in New Jersey determined that neither Mylan Inc. (>> Mylan Inc.) nor Impax Laboratories Inc. (>> Impax Laboratories Inc) infringed upon the company's patent covering its Doryx oral antibiotic. Mylan said it has launched its generic version of Doryx and is shipping the product immediately. Warner Chilcott expects to record an impairment charge between $90 million to $108 million related to its Doryx intangible asset in 2012.

Warner Chilcott has attracted increased focus following a news report last week naming it as a potential target for a buyout by German conglomerate Bayer AG's (BAYRY, BAYN.XE) health-care division, which was also reported to be putting the final touches on a big takeover.

Representatives for Warner Chilcott and Bayer weren't immediately available for comment Monday.

The sweeping language used in Warner Chilcott's statement is typical of strategic soul-searching in the corporate world and often signifies a range of options under consideration, including a sale of all or part of the business, a restructuring, dividend or boost to a stock buyback program.

Warner Chilcott has changed hands a number of times. A unit of drug maker Warner-Lambert Co. until it was sold to an Irish company in 1996, Warner Chilcott was taken private in 2005 by a group of private-equity firms in a $3.1 billion buyout. It returned to the public market in 2006.

Private-equity ownership of the company remains high, adding to the possibility of a sale, Canaccord Genuity analyst Randall Stanicky said.

"The likelihood of a take-out we think may be unlikely but should not be dismissed," Stanicky wrote in a note to clients on Monday.

Three of the company's former private-equity owners--Bain Capital, J.P. Morgan Partners and Thomas H. Lee Partners--rank as its largest shareholders, together holding a roughly 30% stake as of the end of December, according to FactSet Research.

Apparent interest in the company comes as it is struggling to stem sliding sales of its key Actonel osteoporosis treatment, on the decline since the treatment lost patent exclusivity in Europe in late 2010. Like other drug makers, Warner Chilcott is also facing increased competition in the U.S. from generic products.

Those headwinds left the drug maker in January offering a bleak outlook for 2012, saying then that it doesn't expect either profit or revenue growth this year.

On that note, expectations surrounding the company have run more toward it making an acquisition to boost its business, not being bought itself, Oppenheimer analyst Christopher Holterhoff said.

"It's hard to imagine why someone would really be interested in a business that clearly needs some fixing," Holterhoff said in a recent interview with Dow Jones Newswires.

Canaccord's Stanicky also said Monday that he has expected the company to pursue an acquisition, adding it has the ability to take on debt and is well regarded in credit markets.

"I think they'd cast a pretty broad net," he said, pointing to the company's $3.1 billion acquisition in 2009 of Procter & Gamble Co.'s (PG) prescription drug business as proof it is willing to look outside its core strengths.

Stanicky also expressed skepticism the company would look to a dividend as a way to boost shareholder value.

"The challenge for Warner Chilcott is to create a more robust growth story going forward," he said. "I think anything that would reduce their ability to create capital would be viewed negatively by investors."

-By Mia Lamar, Dow Jones Newswires; 212-416-3207; mia.lamar@dowjones.com

--Nathalie Tadena contributed to this article

Stocks mentioned in the article : Warner Chilcott Plc, Impax Laboratories Inc, Mylan Inc.
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