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Watson to buy Schein
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May 25, 2000: 3:37 p.m. ET
Generic drug maker to buy struggling rival for roughly $673 million
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NEW YORK (CNNfn) - Watson Pharmaceuticals Inc. agreed Thursday to buy struggling rival Schein Pharmaceutical Inc. for roughly $673.3 million in cash and stock.
Florham Park, N.J.-based Schein has been publicly on the prowl for a buyer amid an array of problems. The money-losing company has been forced to shut down operations at some plants amid quality-control probes by U.S. regulators and the firm announced earlier this year that it would cut about 15 percent of its work force.
Under the first step of the deal, Watson (WPI: Research, Estimates) will pay $19.50 in cash for all outstanding shares of Schein (SHP: Research, Estimates), a 20 percent premium over Schein's closing price of 16-3/16 Wednesday.
German drug conglomerate Bayer Corp. and members of the Schein family own about 74 percent of the company. They have agreed to tender their shares, the companies said. The deal requires that at least 75 percent of Schein stock, or about 24.5 million shares, be tendered, for a total value of about $477.8 million. Schein has about 33 million shares outstanding.
 Following the tender offer, Corona, Calif.-based Watson will acquire the remaining shares of Schein through a stock swap, based on a value of approximately $23 per Schein share.
The exact ratio will be based on the stocks' average closing prices prior to the closing of the deal. Based on the $23 per-share price, the stock portion of the deal totals about $195.5 million, bringing the pact's total value to roughly $673.3 million.
"This transaction builds upon that existing strategy to expand our brand and generic product offerings," said Allen Chao, Watson's chairman and chief executive officer.
In afternoon trading, Schein stock jumped 3-7/16 to 20-1/4. But Watson shares fell, losing 6-3/8 to 42-3/8.
Trying to improve its bottom line, Schein said in January that it would eliminate about 15 percent of its roughly 1,325 jobs. It also announced that it had hired Evercore Partners Inc. and CIBC World Markets to examine strategic options, including a possible sale of the company.
For the first quarter, Schein posted a net loss of $8.9 million, or 27 cents per share on a diluted basis, compared with net income of $2.2 million, 7 cents per diluted share, in the year-earlier quarter. The net loss in the first quarter of 2000 included a $2.1 million, or 6 cent per share, after-tax charge for severance costs associated with its job force cuts.
Schein's products include INFeD, an injectable iron treatment used for anemia patients.
Watson makes brand-name and generic medications for dermatology, women's health and other markets.
The deal is expected to cut into Watson's earnings in the second half of 2000, and to be "modestly accretive" to earnings in 2001.
The merger is expected to close by early September, the companies said. 
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