Warner Chilcott

Warner Chilcott

Warner Chilcott Ltd. announced Monday that it acquired Procter & Gamble Co.'s prescription-drug business for $3.1 billion. Six banks, led by J.P. Morgan Chase & Co. and Bank of America Corp. and including Credit Suisse Group AG, Citigroup Inc., Barclays PLC and Morgan Stanley, were expected to put up as much as $4 billion in financing for the transaction. Roughly $3 billion will go toward the acquisition, with the remainder refinancing $1 billion in existing Warner Chilcott debt. This would be the fourth-largest "leveraged loan" of 2009 in the U.S. and the largest globally for an acquisition, according to data provided by Dealogic. The last leveraged loan of this size for a deal in the U.S. was in April 2008, when Mars Inc. announced its planned purchase of Wrigley. A leveraged loan is typically defined as a loan made to a borrower with a credit rating below investment-grade or that already carries a good amount of debt.

"The acquisition of the P&G pharmaceutical brands and employee talent is a transformational, strategic move for us," said Roger Boissonneault, president and chief executive officer of Warner Chilcott, in a statement. "The acquisition transforms Warner Chilcott into a global pharmaceutical company, expands our presence in women's health care, establishes us in the urology market in advance of the anticipated launch of our erectile dysfunction treatments, and adds gastroenterology therapies to our product portfolio." Under the terms of the agreement, the majority of the 2,300 employees working on P&G's pharmaceuticals business are expected to transfer to Warner Chilcott. Both companies expect the transaction to close by the end of the 2009, pending necessary regulatory approvals.

The deal is one of the larger transactions in a weak summer market for acquisitions. But perhaps its biggest impact will be on the dormant markets for deal financing, which has been largely shut since the mid-September 2008 collapse of Lehman Brothers Holdings Inc. Financing for deals have lately been mostly limited to big companies with strong credit ratings. None of the banks wanted to underwrite this deal alone, but "no bank wanted to miss out," said one person familiar with the matter. The banks are in part attracted to the transaction because they can demand higher underwriting fees than during the last big deal-making cycle in the middle of the decade, said one person familiar with the deal. Warner Chilcott is able to absorb those fees because interest rates remain historically low, which keeps the company's overall borrowing costs down despite the banks' additional charges.