Does P&G deal mark a sea change?
TEXT OF STORY
Kai Ryssdal: Procter & Gamble, proud purveyor of household staples like Tide and Crest also has a huge prescription drug operation. It’s a multibillion-dollar part of P&G’s bottom line, but it never really caught on like the company had hoped. So today the Irish pharmaceutical firm Warner Chilcott announced it’ll pay just over $3 billion to take drugs off P&G’s hands.
Perhaps most interesting, though, is what the P&G deal says about M&A — mergers and acquisitions. It’s been a while since lenders have been financing these kinds of purchases like they used to. Marketplace’s Jeff Tyler reports.
JEFF TYLER: Money for companies to buy other companies has been scarce for the last year.
KEN MacFadyen: Across the board, lenders have been real gun shy.
Ken MacFadyen is editor of the Mergers & Acquisitions Journal. He says caution in the marketplace kept Procter & Gamble from getting as much money as it wanted for its drug company.
MacFadyen: I think they did sell it for less than they might have hoped for in a good market.
The sale is expected to be worth about $3 billion for P&G.
MacFadyen: I would say, in a normal market, they almost could have gotten double that amount.
But MacFadyen sees the deal as a heartening harbinger for the banking industry.
MacFadyen: That’s a good sign to see that the lenders are active again.
A consortium of banks funded the deal to the tune of $4 billion. That includes money for the buyer, Warner Chilcott, to pay down debt.
Vipal Monga covers mergers and acquisitions for The Deal magazine.
Monga: The fact that the banks are willing to do this suggests that their risk appetite is returning.
But that appetite for risk is still a fairly restricted diet. Monga says banks have viewed drug companies as almost recession-proof cash machines, funding several massive pharmaceutical mergers last spring.
MONGA: The banks were willing to put out the money because of the amount of cash-flow that Warner Chilcott generates. And the fact that it was a health-care deal. I don’t think they would have been putting out $4 billion for a transportation deal, for example.
He expects to see a wave of mergers as companies gobble-up their weaker rivals at bargain prices. But he doesn’t expect momentum to really pick-up until next year.
I’m Jeff Tyler for Marketplace.
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