Watson Pharmaceuticals Inc. is close to buying Swiss-based Actavis for around $7 billion, marking the latest deal between generics companies racing to achieve economies of scale, three sources familiar with the matter said.
The deal would see U.S.-based Watson, already among the world's five largest generic drugmakers, paying between 5 billion and 5.5 billion euros ($6.6 billion to $7.3 billion) for Actavis, a business of comparable size to its own, the sources said.
After rapid expansion in the early 2000s, Actavis underwent a leveraged buyout in 2007 by Icelandic tycoon Bjorgolfur Thor Bjorgolfsson, which left Deutsche Bank holding billions of euros of its debt.
It has since been seen as a target for either an eventual trade sale or an initial public offering.
Spokesmen at Watson, Actavis and Deutsche Bank declined to comment on Wednesday.
Targeting Actavis is a bold move for Watson, whose previous biggest acquisition was the $1.75 billion purchase of Arrow Group in 2009, which established a foothold for the company in Europe.
But the much larger acquisition of Actavis could be made to work since there would be scope for significant synergies, including the possible closure of some manufacturing capacity in the United States.
Watson already enjoys a good working knowledge of Actavis — which used to be based in Iceland but moved its headquarters to Zug, Switzerland in 2011 — since a former chief executive of the group now works for the U.S. company.
Sigurdur Oli Olafsson joined Watson as head of global generics in September 2010, with responsibility for expanding sales and marketing outside the United States.
Watson further expanded its European presence last year when it bought Greece-based Specifar Pharmaceuticals for $562 million. Many analysts have been expecting the U.S. company to strike more deals, since it has more flexibility to take on debt than rivals Mylan Inc. and Teva Pharmaceutical Industries Ltd.
Watson Chief Executive Officer Paul Bisaro said last month he was interested in acquisitions that would boost its generics business or its branded-drugs business, which focuses on women's health and urology.
"We're prepared to do one or both if we can," Bisaro said on the conference call with analysts.
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