Industry - Perrigo acquires Sergeant's Pet Care Products

Perrigo Company announced 13 September 2012 ,that it has signed a definitive agreement to acquire substantially all of the assets of Sergeant's Pet Care Products, Inc. (Sergeant's), a privately-held, Omaha, Nebraska-based manufacturer of over-the-counter (OTC) companion animal healthcare products, for approximately $285 million in cash. 

"This acquisition allows us to penetrate the pet care category by offering numerous flea and tick, health and well-being and consumable products to pet owners at affordable prices," said Perrigo Chairman and CEO Joseph C. Papa. 

"Sergeant's has a proven record of innovation, high quality manufacturing with great customer service. We welcome Sergeant's two hundred-plus employees and over one thousand SKU's to the Perrigo family. We are excited to bring quality and value to consumers and their extended families."

Indeed, recent market trends have shown an increase in companies dedicated to providing healthcare to the companion animal sector as pets make the shift from back yard animals to bedside family members. This move by Perrigo is the first step in executing a strategy to expand its Consumer Healthcare portfolio into pet care, an adjacency of interest to its retail customers. 

"We are very impressed with Sergeant's strategic direction, growth and product offerings since its founding in 1868," said Papa. 

"The team has built a company focused on bringing high quality, affordable pet care products quickly to market and the barriers to entry in this category are high. This strategic acquisition will expand our existing Consumer Healthcare business and add tremendous value for our shareholders for years to come."

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More information about Perrigo: 

From its beginnings as a packager of generic home remedies in 1887, Allegan, Michigan-based Perrigo Company has grown to become a leading global provider of quality, affordable healthcare products. Perrigo develops, manufactures and distributes over-the-counter (OTC) and generic prescription (Rx) pharmaceuticals, infant formulas, nutritional products, dietary supplements and active pharmaceutical ingredients (API). The Company is the world's largest manufacturer of OTC pharmaceutical products for the store brand market. The Company's primary markets and locations of logistics operations have evolved over the years to include the United States, Israel, Mexico, the United Kingdom, India, China and Australia. 

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Key benefits of the transaction:
Quality, Affordable Healthcare with High Barriers-to-Entry: Sergeant's primary OTC channel flea and tick products contain the same active ingredients as the leading veterinary channel national brands, but offer consumers and retailers a compelling value proposition. In addition to regulatory hurdles (e.g., Environmental Protection Agency, Food and Drug Administration compliance), intellectual property portfolios, active-ingredient sourcing and channel access create barriers-to-entry.

Immediate Access to Adjacent Category: The transaction is aligned with the Company's strategic growth objective to expand into adjacent categories where Perrigo can drive enhanced product offerings and value for its retail customers.

Entry into Sizeable and Growing Self-pay Market: Pet Care is an $8 billion industry that has shown consistent growth through economic cycles. Consumers are treating their pets like members of the family and are spending a higher proportion of discretionary income on pet care and well-being.

Revenue Synergies: Sergeant's acquisition allows Perrigo to add products to its current offerings and leverage established distribution infrastructure and customer relationships.

Compelling Value Consistent with Stated Acquisition Criteria: The transaction is expected to be immediately accretive to adjusted earnings per share. The transaction is expected to be approximately $0.12 accretive to GAAP earnings per share and, excluding $0.08 of estimated deal-related expenses and intangible amortization, $0.20 accretive to adjusted earnings per share in the first full fiscal year post-closing. Perrigo's stated goal of Return on Invested Capital accretion is expected to be achieved in fiscal 2014.

Transaction terms:

Pursuant to the terms of the agreement, Perrigo will acquire substantially all of the assets of Sergeant's for $285 million in cash on a debt free basis. Perrigo intends to fund the transaction using cash on hand. 

Perrigo expects to receive a significant tax benefit as a result of the acquisition of Sergeant's assets. The net present value of this tax benefit is estimated to be approximately $50 million. The acquisition is expected to close during the Company's fiscal 2013 second quarter pending the satisfaction of closing conditions, including regulatory approvals.