July 16, 2012 / 1:03 PM / 5 years ago

UPDATE 3-TPG to buy generic drugmaker Par for $1.9 bln

* TPG would pay $50/share for Par, a 37 pct premium
    * Par's top shareholder had urged a sale
    * Par to solicit higher bids through Aug. 24


    By Lewis Krauskopf
    July 16 (Reuters) - Private equity firm TPG said on Monday
it would acquire U.S.-based Par Pharmaceutical Cos Inc 
for $1.9 billion, the latest acquisition in the generic drug
industry.
    The $50-a-share deal represents a nearly 37 percent premium
over Par's closing price on Friday. 
    Under terms of the deal, Par may seek superior bids from
third parties through Aug. 24, and Par said its board would
actively solicit proposals. If no better arrangement is found,
the TPG deal is expected to close this year.
    Par's top shareholder, Ralph Whitworth's Relational
Investors, urged the company in May to consider a sale.
    Par shares rose to $50.01 in mid-day trading after the deal
was announced, after trading as high as $52.33 - well above the
offer - earlier in the session.
    "Even at $50 I still think there's still some value left at
the company that is not being realized," Gabelli & Co analyst
Kevin Kedra said, adding that he believed Par could be worth as
much as $67 a share in a takeover.
    Par ranked as the sixth-largest generic drugmaker by 2011
sales, according to pharmaceutical information company IMS
Health. It has been seen as a takeover candidate for companies
wanting to expand their presence in the U.S. generics market.
    "A lot of the names would probably be companies outside the
U.S. looking to get into the U.S.," Kedra said.
    Teva Pharmaceutical Industries Ltd , Mylan
Inc, Watson Pharmaceuticals Inc and the Sandoz
division of Novartis are the biggest players in the
U.S. generics market.
    Kedra was skeptical that any of the bigger companies would
be interested in Par, with the possible exception of Sandoz.
    "They're not looking in the U.S.," he said. "They're all
pretty strong there. Par wouldn't do too much for them."
    The large generic drugmakers have been seeking to expand
their presence outside the United States, into Europe and other
markets where generics are relatively under-utilized.
    The acquisition of Par comes after larger U.S. rival Watson
agreed in April to buy Actavis Group for at least $5.6 billion
to cement its status as one of the world's largest generic drug
companies.     
    For its size, Kedra said, Par has a strong portfolio of
patent challenges, which potentially allow it six months as the
exclusive seller of generics. Such exclusivity periods can be
valuable profit generators for generic drug companies.
    Par, which posted 2011 revenue of $926 million, also sells
niche brand medicines through its Strativa division.
    Shares of two other small generic drugmakers, Impax
Laboratories Inc and Hi-Tech Pharmacal, rose
more than 3 percent and 8 percent respectively after the deal
was announced.
    Canaccord Genuity analyst Randall Stanicky said the U.S.
generics market is still fragmented with the top five
manufacturers comprising about 50 percent.
    Relational Investors, which has a nearly 10 percent stake in
Par, said in May the company's shares were trading - and would
continue to trade - at a substantial discount to the value
available in a strategic sale to a larger company with similar
products. Substantial cost savings could be achieved in such a
deal, it said.
    JPMorgan served as financial adviser to Par, while Orrick,
Herrington & Sutcliffe was legal adviser. TPG's financial
advisers were Bank of America Merrill Lynch, Deutsche Bank
Securities and Goldman Sachs, while Ropes & Gray served as legal
adviser.

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