Perrigo Company (PRGO), Elan Corporation, plc (ADR) (ELN): This Deal Could Shake Up the Generic Drug Business

Effect on the competition and long-term prospects

As a generic drug firm, Perrigo Company (NYSE:PRGO) must accept lower margins than its brand-name peers. This deal will provide it with access to higher-margin compounds and allow it compete on equal footing with diversified firms like Actavis Inc (NYSE:ACT). Although Perrigo will not transform into the next Pfizer Inc. (NYSE:PFE) on the back of this transaction, it will find itself in a far better competitive position. Similar-sized pharmaceutical firms with aging pipelines or uninspiring generic portfolios will be most vulnerable to the combined firm.

This deal offers something for everyone. In addition to a 2% arbitrage premium, its tax benefits could boost Perrigo Company (NYSE:PRGO)’s profit margins by several percentage points. In turn, the company could begin to trade at higher multiples. Additionally, the combined company will enjoy some compelling synergies that are sure to attract new investors. While it seems like an odd marriage, the Perrigo-Elan Corporation, plc (ADR) (NYSE:ELN) combination could be one of the most exciting pharmaceutical deals of 2013.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article This Deal Could Shake Up the Generic Drug Business originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.