Post on 16-Aug-2015
Running Head: Midterm Case Study 3-1 1
Kimberly Davis
Dr. Tanae
AC552 Business Reorganization and Restructuring
Unit 3 Midterm Case Study 3-1
Teva Acquires Cephalon in a Hostile Takeover
April 14, 2015
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Introduction and Summary
Teva and Cephalon had been discussing the possibility of a merger for the span of about
one year, but the hostile bid by Valeant Pharmaceuticals hastened the decision to seal the deal.
Valeant was only interested in Cephalon’s non-oncology drugs and also in changing the
composition of Cephalon’s board. Cephalon refused to dismember the firm and actually
acquired Gemin X Pharmaceuticals, Inc. and purchased outstanding shares of ChemGenex
Pharmaceuticals, Ltd. This was a positive increase in assets for the acquiring company.
Teva wanted the entire company and willingly paid a higher purchase price because of
greater perceived synergy between the two companies. As mentioned by DePamphilis (2014),
“synergy consists of sources of value that add to the economic value of the combined firms”
(p.310). In an analysis, Teva concluded that they can realize the synergies in the span of three
years.
Teva is best known as the world’s largest maker of generic drugs. In recent years, the
company has looked for opportunities to expand its portfolio of branded drugs (Feuerstein,
2011). There is a higher profit margin for the sale of brand name drugs and Teva was
considering undertaking this endeavor. Cephalon was the perfect prospect to help the company
fulfill its vision for expansion. Teva paid $6.8b cash for Cephalon which ended the hostile
takeover attempt by Valeant Pharmaceuticals.
Strengths, Weaknesses, & Alternatives
Cephalon has a strong product line of strong drugs. It has fast growing cancer drugs and
pain medications which complement Teva’s portfolio of drugs. The strength of this acquisition
is the ability for Teva to gain the ability to produce specialty drugs. This combination allows for
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a stronger footprint in the industry. The fact that they are both in the same industry makes it
easier to integrate processes.
A weakness for Teva is the potential loss of a patent for the only brand name drug they
manufacture which accounts for 21% of their 2010 revenue. Cephalon presents a weakness as
well because they are facing the loss of patent protection on key products (Rockoff, 2011). This
will cause them to lose billions of dollars in sales. If this is not handled by Teva, this acquisition
will become fatal.
Teva should achieve a balance between the brand name products and the generic brand.
Diversification between the offerings can increase profitability and market share.
Analysis & Recommendations
The Israeli drug maker known as Teva made an aggressive decision to takeover
Cephalon. This was a horizontal merger. Valeant exhausted 29 failed attempts to acquire the
target company. They took the bid public in an attempt to break the impasse of the negotiations.
“A hostile tender offer circumvents the target’s board and management to reach the target’s
shareholders directly with an offer to purchase their shares” (DePamphilis, 2014).
Teva and Cephalon was a friendly merger. Together, their value is better than if the
companies stand alone. Both companies are at risk of losing patents, but they have a great
opportunity to build a diversified pharmaceutical company. Teva has to develop an efficient
integration plan to marry the two companies’ product lines. According to DePamphilis (2014),
successful integration efforts are those that are well planned with an appointed integration
management team (p.206). The lines of authority for the manager and team must clearly be
defined. The company may benefit from the following:
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1.) Teva must create an integration team to handle the immediate concerns that must be
handled in a timely manner (ex. Patent renewal). This is critical to making sure that the
synergies are actually realized as anticipated.
2.) The application for the patents for each company needs to be renewed to deter third
parties from attempting to own the rights to the companies’ drugs. In order to make sure
that they can expand effectively and make a difference, Teva must secure the patents for
the drugs that make the company the success that it is.
3.) There needs to be an official and detailed internal analysis of the companies to determine
all the strengths and weaknesses. This will help determine what changes need to be made
in marketing, sales, manufacturing, and leadership.
4.) A new business strategy needs to be developed to reflect the integration of the both
companies’ human resources, manufacturing, product line, etc.
5.) The company needs to develop a new company culture to reflect the combined values and
new vision of the company.
6.) Teva will need to integrate leadership and have management from Cephalon to remain in
place to maximize the transition and help everyone to understand the function of each
other’s roles.
Conclusion
According to DePamphilis (2014), the term takeover is used when one firm assumes
control of another (p.17.). Valeant wanted to takeover Cephalon by any means necessary. Their
offer was valued at $5.7 billion but was outbid by the $8.5 billion made by Teva. There were
two different aggressive approaches in this case. Valeant only wanted to get the shareholders on
its side to accomplish the desired goal and do away with the parts that could not serve Valeant’s
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purpose. Teva was aggressive in offsetting the hostile takeover. If they had not succeeded that
would keep them from moving to the next level. They are now able to utilize all of the assets of
Cephalon to fulfill the company objectives.
Teva accomplished what Valeant could not because they were willing not to dismember
the company. The combination of Teva and Cephalon will produce a line of 20 brand name
drugs which produce sales of $7b annually (Rockoff, 2011). The acquisition of Cephalon
enhances Teva opportunity to achieve high growth rates. This is a horizontal merger that can
create a pharmaceutical company combination that does not rely on only one brand or one type
for advantage in the market.
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References:
DePamphilis, D (2014) Mergers, acquisitions, and other restructuring activities. 7th Edition.
Elsevier
Feuerstein, A (2011) Teva acquires Cephalon for $6.8 Billion. The Street. Retrieved from
www.thestreet.com
Rockoff, J (2011) After long pursuit Teva wins Cephalon. Wall Street Journal. Retrieved from
www.wsj.com