ALLEGAN — Perrigo Co. signed a definitive agreement Monday for purchase of a Tel Aviv-based developer and manufacturer of specialized generic pharmaceuticals, giving it the means to fully launch into the generic prescription market.
With its purchase of Agis Industries Ltd. for $818 million, Perrigo expects to create “a leading diversified health-care company” and build a portfolio of generic prescription drugs as a strategy for future growth.
Agis, the second largest pharmaceutical company in Israel, develops, manufactures and markets pharmaceuticals, active pharmaceutical ingredients and dermatological products. It specializes in both over-the-counter and generic prescription topical drugs. The company has manufacturing operations in Israel, the United States and Germany and sells its products in 26 countries around the world. Agis had net sales of $376 million in U.S. dollars and net income of $31.3 million in U.S. dollars for fiscal 2003.
Members of both boards of directors unanimously approved the agreement, which would give Agis shareholders 0.8011 Perrigo shares and $14.93 in cash for each common share of Agis stock, which will total about 21.9 million shares of Perrigo stock and $409 million in cash.
The transaction represents an offer of $29.87 per Agis share — an offer 21.4 percent higher than Agis’ closing price per share on Nov. 14.
The deal would give Agis shareholders ownership of 23 percent of the combined company when the transaction closes and Perrigo shareholders would own the remaining 77 percent.
The combined company will retain the Perrigo name, remain headquartered in Allegan, and will have nearly 6,000 employees across operations in the United States, Israel, Europe and Mexico, said David Gibbons, Perrigo chairman, president and CEO.
The new company’s stock will be listed both on Nasdaq and in Tel Aviv and its board of directors will be expanded to 11 seats. Agis’ current chairman, Mori Arkin, will serve as vice chairman of Perrigo’s board and will have the right to nominate up to two directors.
The transaction is subject to shareholder approval by both companies, as well as the customary regulatory approval. Gibbons said he expects the transaction to close during the second quarter of 2005.
Arkin, who owns 45.7 percent of Agis shares, has agreed to vote his shares in favor of the $818 million deal, according to Perrigo. Arkin’s late father founded the business in 1961.
Gibbons said it’s hard to imagine “a more complementary combination” of companies in the industry, a combination he referred to as “unique and powerful.” He said the merger brings Perrigo talent, technology and “exciting new growth opportunities,” and combines the best of consumer health care with the best of pharmaceuticals.
“This transaction joins Perrigo’s leadership in store-brand OTC (over-the-counter) pharmaceuticals and nutritional products and our outstanding customer relationships and distribution network with Agis’ strong position in topical generic products and the growing API (active pharmaceutical ingredients) business. It gives us a generic platform with a broad topical (drug) portfolio and really jumpstarts Perrigo’s entry into generics.
“This is the launch into generics that we’ve been looking for and talking about, and the API business is a wonderful complement to it.”
Perrigo is the store brand, over-the-counter leader in consumer health-care products, with a 65 percent market share, Gibbons pointed out. Both companies have had consistent track records of growth, he added. Perrigo’s operating income has grown at a 41 percent compound growth rate over the last four years, while Agis has grown 33 percent.
Arkin said the two companies share a rich heritage of commitment to quality and commitment to customers, and he’s confident their integration will go smoothly.
“This combination is going to allow us to accelerate our generic API (growth) and grow our overseas franchise,” he said.
With the absorption of Agis, Perrigo will have “excellent” R&D capabilities, an experienced global management team, an established position in API, broader capabilities for growth in the global generic pharmaceutical, and added synergies in the generic prescription and OTC businesses, Gibbons said.
Perrigo announced in August 2003 its intention to enter the $15 billion generic prescription market.
“It’s a logical extension of our existing business,” Gibbons reiterated. “Generics over the past five years has been growing at 10 percent or more per year on average. This is a great opportunity for us to leverage our core capability in a category that is growing at a faster rate than Perrigo’s existing categories.”
Previously, Perrigo had considered acquisition of Lannet Co., a Philadelphia-based manufacturer and distributor of generic prescription drugs. Perrigo later determined that the acquisition would not be in the best long-term interest of its shareholders, so the company continued to look for acquisition candidates that could accelerate its entry into the generic prescription market.