Watson in $1.75 B Deal with Arrow Group

Mayank Mehta
17 Jun, 2009
New York City

Watson Pharmaceuticals surges 5% after it agreed to pay $1.75 billion for Arrow Group. E*Trade plunges 15% after it proposed to raise $400 million in stock offering and $1 billion in debt. FedEx declined after it offered weaker than expected outlook for the fiscal first quarter.

[R]12:40 PM New York – Watson Pharmaceuticals surges 5% after it agreed to pay $1.75 billion for Arrow Group. E*Trade plunges 15% after it proposed to raise $400 million in stock offering and $1 billion in debt. FedEx declined after it offered weaker than expected outlook for the fiscal first quarter.[/R]

Of the stocks in S&P 500 index, 213 increased, 281 declined and 6 were unchanged.

E*TRADE Financial Corporation led the decliners in the S&P 500 index with a loss of 12.1% followed by losses in International Paper Company of 5.6%, in Harman International Industries, Incorporated of 5.2%, in Sprint Nextel Corporation of 4.9% and in Hess Corporation o f4.8%.

Genzyme Corporation led gainers in the S&P 500 index with a rise of 4.0% followed by gains in of Reynolds American Inc 2.9%, in DaVita Inc of 2.5% and AmerisourceBergen Corporation of 2.3%.

Other Movers

Adobe Systems Inc ((ADBE)) declined 3.0% or 86 cents to $27.31 after the diversified software company said second quarter revenues fell 21% to $704.7 million from $886.9 million a year ago. Net income in the quarter fell 41% to $126.1 million or 24 cents per diluted share compared to net income of $214.9 million or 40 cents per a year ago.

Actuant Corporation ((ATU)) rose 6.7% or 89 cents to $14.09 after the diversified industrial company reported third quarter sales fell 35% to $290 million from $445 million a year ago. Net loss in the quarter was $17.6 million or 31 cents per diluted share compared to net income of $38.6 million or 60 cents per share a year ago.

Antigenics Inc ((AGEN)) jumped 5.6% or 10 cents to $2.04 after the drug maker today announced that GlaxoSmithKline has launched a Phase 3 study for malaria vaccine that includes company compound.

DaVita Inc ((DVA)) the provider of dialysis services added 3.5% or $1.64 to $47.87.

E*TRADE Financial Corp ((ETFC)) fell 12.1% or 24 cents to $1.41 after the online trader and mortgage bank launched $1 billion debt exchange plan and $400 million stock offering to lower its interest cost and recapitalize the company. The newly issues zero coupon convertible debt will be exchanged for 8% senior notes due in 2011 and 12.5% line notes due in 2017.

The largest stockholder Citadel has agreed to participate between $50 million and $100 million in stock offering and $200 million in debt offering.

FedEx Corporation ((FDX)) declined 2.7% to $50.06 after it estimated first quarter fiscal 2010 earnings per share between 30 cents and 45 cents. For the fourth quarter ending in May, the logistics company reported a loss of $2.82 a share on one time charges of $3.46 a share. The charges stem from the goodwill impairment of $1.2 billion arising from the acquisition of Kinko’s Inc Watkins Moto Lines.

Revenues in the fourth quarter fell 20% to 7.85 billion from $9.87 billion a year ago. Net loss in the quarter was $876 million or $2.82 per diluted share compared to net loss of $241 million or 78 cents per share a year ago.

Genzyme Corporation ((GENZ)) climbed 4.0% or $2.21 to $54.96 after the biotechnology company said that it has detected a virus that impairs cell growth in one of six bioreactors at its manufacturing facility. The company has decided to temporarily interrupt bulk production.

International Paper Company ((IP)) slid 5.6% or $1.01 to $13.74 on a ratings revision from BMO Capital Markets.

Harman International Industries, Inc ((HAR)) the maker of audio equipment and devices plunged 4.7% or 97 cents to $19.43 after it reported a plan to offer shares in a public offering.

Reynolds American Inc ((RAI)) surged 3.0% or $1.25 to $37.58 after the cigarette manufacturer said jury verdict was in the favor of the company in a patent infringement lawsuit brought by Star Scientific, Inc in the U.S. District Court for Maryland, Northern Division.

Rio Tinto plc ((RTP)) the world’s third-largest mining company dropped 8.4% or $15.26 to $166.30 after the company traded ex-rights offering price. The company issued two shares for every four shares held at a discount to raise $15.2 billion.

Sprint Nextel Corporation ((S)) dropped 6.6% or 36 cents to $5.08

Watson Pharmaceuticals ((WPI)) gained 5% or $1.44 to $30.28 to after it agreed to acquire privately help UK based Arrow Group for $1.75 billion. The deal will help company to grow in international markets including Canada and Europe.

Watson will pay $1.05 billion in cash and raise the $500 million in stock offering and the rest through debt. At 2.7 times the sales, the deal is not cheap but other deals in the industry have been done near two times sales. Mylan acquired generic business of Merck KGaA based in Germany at 2.7 times revenues. Arrow will also receive additional payment on a contingency basis for the sale of generic version of Lipitor.

Arrow operates as Cobalt Pharmaceuticals in the U.S. and Canada and employs 250 people in R&D at its Australia based facility and employs 1,000 people worldwide.