Warner Chilcott tosses shareholders $1bn and pulls down the for sale sign
This article was originally published in Scrip
Talks with potential buyers for the Irish speciality pharma company Warner Chilcott have ended without result, the Nasdaq-listed company has announced. Instead, it plans to return cash to shareholders in the form of a $4.00 per share special cash dividend and a share buyback. In April, Warner Chilcott said it was conducting a strategic review of a "broad range of alternatives to enhance shareholder value, including preliminary discussions with potential offerors", after rumours suggested that Bayer may be preparing a $32 per share bid.
The company's share price opened down by 8% at $16.35 on 8 August after the company announced following market close the previous day that it would pay out $1 billion in total from existing cash and new debt of $600 million to shareholders in the form of the special dividend, to be paid by the end of September. Warner Chilcott has a market capitalisation of around $4.5 billion and at the end of June reported cash on hand of $530 million and total outstanding debt of $3.5 billion.
Warner Chilcott also announced a new dividend policy to pay a total annual cash dividend of $0.50 per share in two $0.25 instalments, starting in the fourth quarter of 2012. In addition the company plans to redeem up to $250 million worth of ordinary shares by the end of 2013, on top of the $88 million already redeemed under a current programme; this will be funded by cash generated from operations.
"We do not believe the sale of Warner Chilcott would maximise value for shareholders," president and CEO Roger Boissonneault said in a conference call, adding that this was not surprising given the company's belief that it is undervalued and the current availability and cost of debt capital for potential buyers. He would not disclose the identities of parties involved in the discussions nor whether any had made a firm offer.
According to company executives, the firm could have made a much larger special dividend payment to shareholders, but wanted to retain the flexibility to conclude strategic transactions, for which they have been on the look-out for more than a year. As it stands, the company will still be able to prepay debt while retaining a "good capacity for transactions of some scale". The firm would consider a broad range of deals but has not yet found a suitable opportunity.
"I think the market seems to be a bit frustrated that we haven't pulled the trigger on something. It is not for lack of effort on the inside here to look at transactions," CFO Paul Herendeen told investors last week following the announcement of quarterly results. "But nor do we believe that there have been transactions that have been done away from us that we say, 'Gee, we wish we had done that'."
In the meantime, the company will continue to evaluate opportunities, preferring products over companies. However, it must assess potential acquisitions on the basis that its sales force is already "allocated against very profitable assets right now", noted Mr Boissonneault.