Teva is to buy Cephalon of the USA for $6.8 billion, comfortably beating a hostile offer made a few weeks ago by Valeant Pharmaceuticals International.

Valeant had been prepared to pay $5.7 billion, or $73 per share for Cephalon, but Teva's offer of $81.50 per share has won the day. It represents a 39% premium to Cephalon's stock price on March 29, the last closing price before Valeant's unsolicited proposal was announced and 6% above Cephalon's share price on April 29.

For this considerable sum, Teva, the world's number one generics company, is significantly expanding its branded business which is presently dependent on the multiple-sclerosis blockbuster Copaxone (glatiramer acetate).

In 2010, Cephalon posted sales of $2.76 billion, up 28%, and adjusted net income of $657 million (+40%). That growth was driven by the sleep disorder drug Provigil (modanafil) and its follow-up long-acting drug Nuvigil (armodafinil), the chemotherapy drug Treanda (bendamustine), the cancer painkiller Fentora (fentanyl buccal).

Another attraction is Cephalon's recently-acquired generics unit Mepha, which gives Teva the number one firm in the sector in Switzerland and a strong presence in central and eastern Europe, Africa and Latin America.

Synergies of at least $500 million

The transaction is expected to be immediately accretive to Teva's non-generally-accepted-accounting-principles earnings per share. The buyer also expects to realise annual cost synergies of at least $500 million in year three following closure.

The combined company will have around $7 billion in sales, "with a robust pipeline including more than 30 late-stage compounds", Teva noted. The Israeli drugmaker added that the deal will create "immediate and sustainable value in niche therapeutic areas including CNS, oncology, respiratory and pain management" and "a leader in specialty pharma".

Chief executive Shlomo Yanai said "this is transforming for Teva's branded business, as it will help us to deliver on our strategic goal of creating a diversified, multi-faceted company". He added that "we have been following Cephalon for a long time and are very happy with the opportunity to join forces".

His counterpart Kevin Buchi said the merger "is the result of a rigorous process that included a review of a wide-range of strategic options". He added that Teva shares "our strong commitment to R&D, and we believe our pipeline will thrive under their leadership".

The deal has gone down well with analysts, especially given the possibility of future generic threats to Copaxone. It also will help Teva achieve its previously-stated goal of growing its branded revenues from $4.6 billion in 2010 to over $9 billion in 2015.

Meantime, Valeant has been gracious in defeat. It issued a statement congratulating the two firms, and withdrew its consent solicitation. Chief executive Michael Pearson said "we are pleased that Teva has paid what we believe is a very full value for the company and…as Cephalon stockholders ourselves with over a million shares owned, we will benefit from this transaction without participating further in the process".