Teva Cephalon Merger

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  • Topic: Teva Pharmaceutical Industries, Generic drug, Takeover
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MJacob Bliberg (jb3975@stern.nyu.edu)
Jasper Buntinx (jasper@buntinx.eu)
April 2013
Post-Acquisition Report

Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) $6.8Bn acquisition of Cephalon, Inc. (NASDAQ: CEPH) – October 14, 2011|

Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) is a leading global pharmaceutical company which develops, produces and markets affordable generic drugs. Teva is the world's largest generic drug maker, with a direct presence in about 60 countries. Teva's branded businesses focus on neurological, respiratory and women's health therapeutic areas as well as biologics. | FINANCIAL FIGURES $Mn| Teva| Cephalon| Market CAP:| 46,029 | 4,848 |

Debt:| 5,612 | 1,390 |
Cash:| 2,248 | 1,648 |
EV:| 49,393 | 4,591 |
Sales:| 13,899 | 2,152 |
EBITDA:| 4,761 | 721 |
Net Income:| 3,029 | 335 |
SE Book Value:| 19,222 | 2,262 |
| Cephalon Inc, founded in 1987 is a biopharmaceutical company that develops and markets pharmaceuticals products for mainly central nervous system disorders, pain, oncology, and addiction. The company distributes eight proprietary products in the United States, and more than 100 products internationally.|

DEAL SUMMARY|
On May 2nd 2011, Teva Pharmaceutical Industries Ltd agreed to buy the biopharmaceutical company Cephalon for $81.50 per share or $6.8 billion in a bid to increase their presence in specialty, branded products. The offer followed after an earlier made hostile bid of $5.7 billion by Valeant Pharmaceuticals was rejected. It was said that Valeant’s $73.00 per share offer undervalued the company and was too opportunistic. Teva’s cash bid of $81.50 a share represents a 39% premium to Cephalon’s share price before Valeant’s unwarranted offer was announced, and a 12% premium on Valeant’s offer. As soon as Teva made its bid, Valeant, who owned 1million shares of Cephalon, announced it was good news and withdrew its offer immediately stating that it was not willing to get involved into a bidding war. The all-cash deal will be financed through existing cash at hand, credit facilities and the public. On October 15, four and a half months after the announcement and after the approval of the U.S. Federal Trade and European Commissions the deal was completed and all common stock had been converted into rights to receive $81.50 in cash. However, in order to get approval, Teva was forced to sell some of its assets and share products with competitors in order to preserve competition in the market.

Together, the two companies will have more than 20 branded products augmenting Teva’s sales for branded products from $4.6 billion to $7.0 billion. Overall sales of the combined companies are expected to reach $20 billion. In addition Teva and Cephlon combined will have a pipeline with over 30 products in late-stage trails. With the acquisition Teva has also strengthen its position in areas like pain management, oncology and respiratory diseases. MULTIPLES ANALYSIS|

Cephalon was valued at a lower sales and EBITDA multiple in the market around time of acquisition to the pharmaceutical drugs industry average financial multiples. Using an industry average sales multiple of 4.3x and EV/EBITDA multiple of 14.3x, Cephalon would be valued at 9.2 and 10.3 billion USD respectively. Cephalon was market valued at 4.6 billion USD around the time of the acquisition, and Teva paid a Sales multiple of about 3.2x and an EV/EBITDA multiple of about 9.4x. The sales multiple is on lower side of the industry average, as well as the EBITDA multiple, however this seems appropriate relative to Cephalon’s already low market multiples. Teva did purchase Barr Pharmaceuticals for a similar EBITDA multiple in 2008.

 | Sales Multiple| EV/EBITDA Multiple| P/E Multiple| P/BV Multiple| Cephalon Inc.| 2.1 | 6.4 | 14.5 | 2.1 |
Industry Average| 4.3 | 14.3 | 28.3 | 3.4 |
Diff| (2.1)| (7.9)| (13.8)| (1.2)|

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