Akorn to Acquire Hi-Tech Pharmacal for $640 Million

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Akorn, Inc. (NASDAQ: AKRX) and Hi-Tech Pharmacal Co., Inc. (NASDAQ: HITK) today announced that they have entered into a definitive agreement under which Akorn will acquire Hi-Tech for $640 million in cash.
Hi-Tech is a specialty pharmaceutical company developing, manufacturing and marketing generic and branded prescription and over-the-counter (OTC) products. Hi-Tech specializes in difficult to manufacture liquid and semi-solid dosage forms and produces and markets a range of oral solutions and suspensions, as well as topical ointments and creams, nasal sprays, otics, sterile ophthalmics and sterile ointment and gels products. Hi-Tech’s Health Care Products division is a leading developer and marketer of OTC products. Hi-Tech's ECR Pharmaceuticals subsidiary markets branded prescription products.
Under the terms of the agreement, Akorn will pay $640 million in cash, or $43.50 per share. This represents a 23.5% premium over the closing price on August 26. Akorn expects to achieve between $15 million and $20 million in annual run-rate synergies within 12 months of close. The combined company is expected to have annual revenues in excess of $500 million and the transaction is expected to be accretive to Akorn’s non-GAAP adjusted earnings per share immediately upon closing. Assuming the transaction occurred on January 1, 2013 and assuming the full realization of synergies, the acquisition would have been approximately 40% accretive to Akorn’s expected 2013 non-GAAP adjusted earnings per share.
Raj Rai, Akorn’s Chief Executive Officer, commented, “This is a transformative event for our company. The portfolio of Hi-Tech products is a great strategic fit to our currently marketed products as it diversifies our offering to our retail customers beyond ophthalmics to other niche dosage forms such as oral liquids, topical creams and ointments, nasal sprays and otics. In addition, we are excited about Hi-Tech’s product pipeline which would further enhance growth opportunities for the combined platform.”
Rai further added, “The acquisition of Hi-Tech will also add branded OTC products in the categories of cough & cold, nasals, and topicals to Akorn’s existing TheraTears® brand of eye care products. We also plan to capitalize on the manufacturing capabilities of Hi-Tech to further expand our presence in the private label OTC business.”
Hi-Tech’s Chief Executive Officer, David Seltzer, said, “We are excited about the transaction as it delivers compelling value to our shareholders. The combined portfolio of marketed products and products in development offer a very unique platform with great growth potential. We are very pleased to be joining forces with Akorn and their strong management team led by Raj Rai.”
Key Benefits of the Transaction
Creates a larger, more diversified specialty generics player
The combination strengthens Akorn’s current position as the third largest U.S. generic ophthalmic player, and broadens the product offering to include other niche dosage forms such as oral liquids, topical creams and ointments, nasal sprays and otics. Also, this transaction significantly increases Akorn’s retail presence in both prescription and OTC products.
Expands Pipeline
Akorn currently has 57 abbreviated new drug applications (ANDAs) filed with the U.S. Food and Drug Administration (FDA) with a combined annual addressable IMS market size of approximately $5.6 billion. Hi-Tech has 18 filed ANDAs with a combined annual addressable IMS market size of approximately $2.6 billion.
Financially Compelling and Immediately Accretive
The transaction is expected to be accretive to non-GAAP earnings immediately upon closing, before synergies. Assuming the transaction occurred on January 1, 2013 and assuming the full realization of synergies, the acquisition would have been approximately 40% accretive to Akorn’s expected 2013 non-GAAP adjusted earnings per share.
Significant Synergies Expected
Akorn expects to achieve between $15 million and $20 million in annual synergies through operating efficiencies.
Strong Combined Cash Flow Allows for Rapid Debt Repayment
Upon closing, the combined company will have a strong balance sheet and attractive cash flow, giving it financial flexibility to pursue continued growth initiatives while paying down debt.
Transaction Terms
Under the terms of the agreement, Akorn will acquire Hi-Tech for $640 million, or $43.50 per share. Akorn intends to fund the transaction through a combination of Hi-Tech cash assumed and approximately $600 million in term loan borrowings. As of the fiscal year-ended April 30, 2013, Hi-Tech had $100.6 million in cash and cash equivalents. Fully committed financing for the transaction has been provided by JPMorgan Chase Bank, N.A.
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