Dublin based Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has seen its share price rise steadily since the beginning of January, fueling speculation that the company may be about to become the target of a takeover bid. Hardly surprising when you consider the number of pharmaceutical giants from around the world that have been sniffing around various Irish firms due to the low corporate Irish tax rate. Indeed, the trend hasn’t gone unnoticed. Timothy Chiang, an analyst at CRT Capital Groups, was prompted to label the phenomenon “a feeding frenzy.”
2013 saw several deals go through. New Jersey firm, Actavis plc (NYSE:ACT), bought Dublin firm Warner Chilcott Plc (NASDAQ:WCRX) (FRA:G3LA), in the process reducing its effective tax rate from 37% to 17%, while Michigan based Perrigo bought Elan Corporation, plc (ADR) (NYSE:ELN), stating that the purchase would help it save more than $150 million a year in cost cuts and lower taxes.
Jazz Pharmaceuticals could be more than just a tax break
At Jazz Pharmaceuticals plc (NASDAQ:JAZZ), the low tax rate is only part of the story. The firm recently acquired Italian drug developer, Gentium S.p.A. (ADR) (NASDAQ:GENT), for $1 billion – a significant acquisition as, in October, Gentium was granted European approval for the drug Defitelio, a treatment for a rare disease that can occur after stem cell transplants.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ)’s CEO, Bruce Cozadd said:
“Incorporating Gentium into Jazz Pharmaceuticals is a strong strategic fit as Defitelio would diversify our development and commercial portfolio and complement our clinical experience.”
Analysts reckon this treatment alone could quadruple the firm’s revenues over the next three years. Difei Yang, at RF Lafferty said:
“With the addition of Gentium, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has further diversified the revenue base. It’s a positive addition and a positive step forward for Jazz. This makes them a more attractive target.”
Not everyone agrees. Brean Capital analyst, Gene Mack, for example, doesn’t believe the tax advantage is a large enough motive to offset what would be a huge price tag:
“It’s not as simple as it seems. You’ve got to see other synergies, some other fundamental benefit. It can’t just be for the Irish tax rate.”
Sales are only going one way – up!
This is true, but sales of Jazz Pharmaceuticals plc (NASDAQ:JAZZ)’s own Xyrem treatment are also doing well and projected to rise by about 60-70% this year. The company is already more profitable than many of its peers.
He’s right when he says Jazz Pharmaceuticals plc (NASDAQ:JAZZ) won’t come cheap. The firm more than doubled its market value in 2013 to stand at $7.3 billion, up from $1.6 billion just two years ago. However, if the figures presented at last Monday’s JPMorgan Health Conference are anything to go by, that mightn’t be a bad deal. Revenues more than doubled from $272m to $586m between 2011 and 2012 and projections for 2013 could see revenues hit $870m.
Who likes Jazz?
The question is, who might be considering a bid? When asked by ValueWalk, spokesperson Marissa Green at Jazz Pharmaceuticals said:
“We can’t comment on any speculation regarding other companies’ intent. We continue to focus on increasing shareholder value through strategic corporate development.”
But Allergan, Inc. (NYSE:AGN), Mylan Inc (NASDAQ:MYL) and Forest Laboratories, Inc. (NYSE:FRX) were all in interested in Elan Corporation, plc (ADR) (NYSE:ELN) before losing out to Perrigo, so it would be reasonable to suspect that they’re still on the hunt for an Irish firm. And, right now, Jazz would be the most obvious candidate.
While Forest Laboratories, Inc. (NYSE:FRX) is caught up in the process of acquiring Aptalis for $2.9 billion, and Allergan, Inc. (NYSE:AGN) has just sold its loss making obesity business, a more likely candidate is Mylan Inc (NASDAQ:MYL), a firm that shared the stage with Jazz Pharmaceuticals plc (NASDAQ:JAZZ) at J.P. Morgan’s 32nd Annual Healthcare Conference in San Francisco last week. It’s hard to imagine that Mylan’s representatives were anything other but impressed by the figures on display during Jazz’s presentation.