Perrigo Company (NYSE:PRGO)
’s acquisition of Elan Corporation, plc (ADR) (NYSE:ELN)
for $8.6 billion has been widely criticized by many as a way for Perrigo to avoid paying a high U.S. corporate tax rate. Analysts believe that Perrigo’s acquisition represents a shift where companies are seeking assets in low taxed countries to increase profitability. According to analysts, there were several companies that were bidding to acquire Elan, but with Elan acquired, which Irish company might be next?
Why is Ireland attractive?
Perrigo Company (NYSE:PRGO) is a $12 billion company that has increased 260% over the last five years. The company generated $3.4 billion in sales over the last 12 months and has an operating margin of 19.7%. The company is based in the U.S., therefore pays a 35% corporate tax rate. However, with the acquisition of Ireland’s Elan Corporation, plc (ADR) (NYSE:ELN), the company’s tax rate drops to 12.5%, and earnings could increase more than $700 million annually over a course of several years -- due to the tax savings.
Not to mention, Perrigo Company (NYSE:PRGO) gains $2 billion in cash that was on Elan Corporation, plc (ADR) (NYSE:ELN)’s balance sheet, and a 50% market share of its multiple sclerosis drug Tysabri. Biogen Idec Inc. (NASDAQ:BIIB)
markets Tysabri and pays a double-digit royalty on annual sales, which Perrigo will now receive. The drug has peak sales potential of $3 billion annually. Once the drug’s annual sales exceed $2.5 billion, Perrigo’s share will rise from 18% to 25%, which could equate to $750 million if peak sales are reached.
Looking at Perrigo Company (NYSE:PRGO) as a company, the benefit of tax savings plus the top line benefit from Tysabri makes the acquisition of Elan Corporation, plc (ADR) (NYSE:ELN) a wise long-term move. In fact, with other opportunities in Ireland, this one acquisition could lead to more just like it.
The best available target
In my opinion, while there are several acquisition opportunities based in Ireland, including Alkermes Plc (NASDAQ:ALKS)
, but I think that Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ)
is the most intriguing.
Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ) is a company that should be on your radar as a potential takeover target. Unlike Elan Corporation, plc (ADR) (NYSE:ELN), Jazz markets its own drugs, including 10 total and a large pipeline. During Jazz’s last quarter, revenue grew 91.4% year-over-year as its narcolepsy drug Xyrem continues to grow: Xyrem accounted for 60% of the company’s $196 million in quarterly sales.
Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ) has annual sales of $680 million and trades with a market cap of $4.6 billion. To the naked eye, its 6.6 times sales valuation might appear pricey, but with an operating margin of 39.5%, Jazz trades at just 10 times next year’s earnings.
The reason that Jazz Pharmaceuticals plc - Ordinary Shares (NASDAQ:JAZZ) produces such great profits is because it is based in Ireland. Therefore, Jazz enjoys the same 12.5% tax rate that made Elan Corporation, plc (ADR) (NYSE:ELN) so attractive, and also has explosive growth and a bright future with its pipeline.