Teva acquires Cephalon in $6.8 billion deal

By David Sell

Two pharmaceutical companies with big footprints in the Philadelphia area joined forces Monday to ward off an unwanted out-of-towner.

Teva Pharmaceutical Industries Ltd. is based in Israel but has long operated prominently in this area. On Monday, it acquired Cephalon Inc., of Frazer, in a $6.8 billion deal announced by both companies.

Cephalon was trying to ward off a hostile-takeover attempt by Valeant Pharmaceuticals International, which has headquarters in the Toronto suburb of Mississauga. Valeant’s offer of $73 a share was trumped by Teva’s offer of $81.50 a share.

In a morning conference call with analysts, executives from both companies said they were familiar with each other and had discussed the possibility of an acquisition in the past. Valeant had prompted them to quickly revisit the topic, they said.

Does it matter that they traverse the same crowded highways in Chester County and Montgomery County? (Teva’s North American headquarters is in North Wales.)

“It does not,” Cephalon chief executive officer Kevin Buchi said in a phone interview. “For Cephalon, it was about maximizing value, which is our fiduciary responsibility. This deal is absolutely consistent with that. And for our employees and patients, the outcome is also favorable.”

Everything is relative, though, and for now the deal likely will put two sets of employees on edge.

Valeant might have cut more out of Cephalon, since Valeant CEO J. Michael Pearson said that he thought research and development was a bad gamble and that Cephalon’s pipeline was weak. Conversely, Teva executives said they wanted Cephalon’s pipeline to help them become a more balanced company, less reliant on generic drugs.

So it was the lesser of two evils for Cephalon employees? “You got it,” said one worker on the Cephalon campus Monday, declining to give his name.

Still, Teva executives said in the analysts call, they see $500 million in cost synergies by the end of 2013, which often translates into job cuts. As Teva’s Americas CEO Bill Marth said in the conference call, there is “overlap.” He noted later that local Teva workers also were concerned, but he tried to ease fears.

“Teva has 40,000 employees around the world, so if we make a change, it doesn’t mean it will be in Philadelphia,” Marth said in an interview, neither specifying areas that might be cut nor denying that some would be. “Together, we can create something far better than we can apart.”

Nasdaq traders seemed to agree. Teva finished the day up $1.54 at $47.27, while Cephalon rose $3.09 to $80.11. The $81.50 offer was a 39 percent premium on Cephalon’s stock price on March 29, the last closing price before the Valeant offer was announced.

Teva said the combined companies would have about $7 billion in sales. The deal would be made with cash on hand, lines of credit, and through the public debt market, Teva said.

Valeant’s Pearson said in a statement: “As Cephalon stockholders ourselves, with over a million shares owned, we will benefit from this transaction without participating further in the process.”

Not everyone is so sure the deal will benefit the area immediately around the Cephalon headquarters.

Just over a hill is Great Valley High School. “Cephalon was always a sponsor of school events,” principal Dan Goffredo said. “They sponsor our Desmond Hotel project, and when we needed additional parking for events, they were always cooperative.”

The Desmond Hotel in Malvern gave about 100 Great Valley students per year exposure to the reality of the business world. They learned about leadership, teamwork, and more, with the idea that the hotel would let them run the place for one night (with supervision). Students practiced sales presentations in front of Cephalon executives, and the company sponsored scholarships. The year-end banquet was Sunday.

“Cephalon has been a wonderful corporate partner,” said Carol Miller, the hotel’s marketing chief, who added that the company had discussed helping with building a new fire station nearby.

Miller is a bit worried now: “It’s different when someone has a headquarters here.”

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