Friday, June 26, 2015
Valeant Pharmaceuticals International Inc. has made a preliminary approach to buy animal-health giant Zoetis Inc., people familiar with the matter said, in a move that could presage a big deal in yet another corner of the health-care industry.
Zoetis, which was spun off from Pfizer Inc. in 2013, is the largest seller of vaccines and medicines for livestock and household pets and had a market capitalization of nearly $25 billion on Thursday afternoon before The Wall Street Journal reported the approach.
Zoetis shares, which were already trading at all-time highs, rose 11% on the news to close at $55.38.
It isn’t clear what the company’s reaction to the approach was, if any, or whether it is open to a sale.
Executives at Zoetis have said they are interested in buying assets to expand, but the company has long been considered by analysts to be a potential takeover target. The expectation Zoetis could sell itself increased when activist investor William Ackman took an 8% stake in the company last November and then gained a board seat. Mr. Ackman, who teamed with another hedge fund on the investment, Sachem Head Capital Management LP, was expected to push Zoetis to cut costs and consider any potential buyout offers, people familiar with the matter have said.
Mr. Ackman is close with Valeant Chief Executive J. Michael Pearson and his investment fund, Pershing Square Capital Management LP, also owns 5.7% of Valeant. Mr. Ackman and Mr. Pearson teamed up last year in an unsuccessful effort to buy Botox maker Allergan Inc. They ultimately lost out to Actavis PLC, which paid $66 billion and recently took Allergan’s name.
Amid the Allergan sales process, Zoetis was viewed by Valeant as a potential fallback target, the people said at the time.
Given U.S. tax rules, Wednesday marked the first date that any buyer could do a deal with Zoetis without potentially triggering a hefty tax bill related to the spinoff.
In addition to Valeant, analysts have speculated that others including German drug maker Bayer AG could be interested in Zoetis.
Bayer CEO Marijn Dekkers has in the past expressed a desire to expand in animal health. Bayer discussed with Pfizer the possibility of buying Zoetis before the unit became a stand-alone company, The Wall Street Journal has previously reported.
Valeant is an acquisitive Canadian pharmaceutical company whose string of deals and aggressive approach to cost-cutting have shaken up the drug industry in recent years.
Mr. Pearson has said he has ambitions of tripling his company’s size through acquisitions, and has indicated that animal health is an area of potential interest.
Mr. Pearson hasn’t been alone among those potentially interested in bulking up in animal health.
The world-wide market for animal medicines is worth $23 billion and growing, as the world’s population grows and demand for food increases, according to Zoetis. Pet ownership is also rising as the middle class expands around the world and more people bring cats and dogs into their homes.
Competition is also intensifying. Eli Lilly & Co. entered the top ranks of sellers of animal medicines this year, after paying $5.4 billion to buy Novartis AG’s business.
Zoetis has taken steps to cut costs, which CEO Juan Ramon Alaix has said were being planned well before Mr. Ackman took an ownership stake.
In May, Zoetis announced plans to cut $300 million in costs by 2017, including laying off about 2,000, or 20%, of its employees. The company also said it would close 10 manufacturing plants and eliminate some versions of products that aren’t selling well.
Under an agreement with Pershing Square, Zoetis added William Doyle, an executive at the hedge fund, to its board, along with Paul Bisaro, executive chairman of Allergan.
Its vaccines and medicines for livestock and household pets generated $4.8 billion in revenue in 2014, a 5% increase.
As it tries to cut costs and simplify the organization, Zoetis has also said it is trying to boost its pet-medicines business, which accounts for about 35% of sales.
Zoetis has high hopes for two new products in the late stages of development: monthly injections for dogs experiencing skin allergies and a chewable flea-and-tick tablet for dogs.
Mr. Alaix said the changes were being made now that Zoetis had fully separated from Pfizer and would set up the company to be more profitable. He said they would help make acquisitions easier for the company to swallow, too.
wsj.com
