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Watson Pharmaceuticals (WPI)
Watson Buys Arrow Group for $1.75 Billion
Watson Pharmaceuticals Inc. (WPI: Charts, News, Offers) has agreed to buy the private drug manufacturer Arrow Group for $1.75 billion. The deal will require Watson to pay $1.05 billion in cash as well as the issuance of $500 million in Watson common stock. Watson Pharmaceuticals will pay the remaining $200 million balance in zero-coupon preferred stock, which will be redeemable three years after the close of the transaction. In addition, Arrow shareholders will receive bonus payments based on sales of the generic version of Lipitor, a popular cholesterol-reduction drug that Arrow manufactures. Why did Watson pay such a high premium for Arrow Group?
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| Stock Analysis |
The driving force behind the deal for Watson was global expansion. Watson Pharmaceuticals is looking to move into new markets, particularly overseas. In an attempt to keep pace with the rest of the medical drug industry, Watson felt the need to develop international capabilities. Watson Pharmaceuticals Inc. wants to build a strong global pipeline and product portfolio that will enable it to quickly and effectively enter emerging markets. As a result, Arrow Group seemed like the perfect stepping stone to achieving that goal.
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Arrow Group is a generic pharmaceutical producer that recorded $647 million in revenue during 2008. It also has an impressive international market share that stretches over 20 countries, including the U.K., Canada, France, and Britain. In addition, Arrow has production facilities in Brazil, Canada, and Malta, which are complimented by a research and development center in Australia. Watson was attracted to Arrow's impressive company growth and expansive global network. Watson Pharmaceuticals Inc. was also enticed by Arrow's exclusive U.S. rights to the generic version of the cholesterol drug Lipitor.
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Overall, Arrow Group seems like it will synergize well with Watson Pharmaceuticals. Arrow's core competencies align nicely with Watson's vision of the future. However, Watson is focused on big-time market movement, and Arrow is a relatively small company. Will Arrow Group be able to produce the large scale results that Watson is hoping for? Watson Pharmaceuticals seems to think so, but only time will tell if Arrow Group was worth the hefty price tag.
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