Watson Buys Actavis; Stock to Outperform

Watson Pharmaceuticals' purchase of Actavis created the third-largest global generic-drug maker and the company's stock shot up by 5.7%.

On Wednesday, Watson Pharmaceuticals bought Actavis for $5.6 billion, creating the third-largest global generic-drug maker, according to Bloomberg. Watson is the maker of the generic version of Lipitor, and the buyout would give the company a larger presence in Eastern Europe, China and India.

The New Jersey-based company’s stock jumped up to a 52-Week high after the long-rumored buyout was confirmed. Before the deal was announced, Watson’s stock was $69.69 when the markets closed on Wednesday. By early afternoon, the stock price was up 5.7%.

After the deal Morgan Stanley raised the price target for Watson’s stock to $84.

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The blue triangle in the above graph depicts the range for the stock’s potential price target. The bullish case points the price at $95 in case “revenue and future tax rate synergies yield additional [earnings per share] upside.” The bearish case point the price at $60 if the “acquisition surprisingly fails.”

An analyst at Credit Suisse boosted the price target to $98, according to TheStreet.com.

Watson anticipates revenue in 2012 to reach $8 billion. The company expects to close the deal by the end of 2012 so that 2013 will be a full year of combined operations.

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Watson to Buy Actavis for $5.6 Billion in Generics Deal

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