Call it conspicuous consumption.
Serial acquirer
A prospective Valeant and Zoetis tie-up is likely to come as little surprise to those following the consolidating pharmaceutical and healthcare sector, as drug manufacturers look to combine overlapping corporate structures, sales forces, distribution infrastructure and drug pipelines. Valeant, which manufactures products ranging from gastrointestinal disorder treatments, to contact lenses and skincare, spent nearly a year pressing a bid for Botox-maker Allergan. When it lost the bid in late 2014, many assumed Zoetis was the company's Plan B.
Furthermore, as mid-sized healthcare and pharma companies like Valeant,
A premium-priced takeover of Zoetis may underscore just how quickly companies like Valeant, once an industry afterthought mired in operational problems, are nipping on the heels of large drug-makers. At their current pace of acquisitions, drugmakers like Allergan and Valeant are poised to soon eclipse industry giants such as
Pfizer spun Zoetis in early 2013 as part of a de-consolidation effort under CEO Ian Read, and Wall Street speculates the Dow Industrial drug giant may continue to work on a split of its business lines, even after closing a recently announced $17 billion takeover of generic drugmaker
Pfizer's deal came less than a year after it withdrew a $118 billion takeover effort for
The freeze iced a handful of inversion deals, but did little to slow the likes of Valeant, Allergan and Mylan, which had their low tax rates grandfathered. With un-equal playing field set in stone, hedge funds flocked to stocks with tax advantages and the mergers continue. This is the hottest year on record for healthcare and pharma deals, according to data provider Dealogic.
A Valeant and Zoetis deal raises new questions. (Both companies declined to comment citing policies to not comment on speculation) With few mid-sized drugmakers incorporated in the U.S. remaining on public markets, is a true mega-deal on the horizon?
It seems so.
There isn't really a point for tax-advantaged drugmakers to fight among each other over mid-sized deals, pushing up prices and lowering IRRs, when the biggest tax savings and financial synergies sit within the industry's largest players.
A prospective premium-priced takeover of Zoetis also underscores that it's never been a better time for the likes of Pfizer to sell, or spin business lines. By buying specialists like Hospira, Pfizer may be building valuable feed for a rising breed of tax-avoiding, deal-hungry industry consolidators.