Two years after Credit Suisse and J.P. Morgan Chase & Co angered top private equity firms by invading their turf and outbidding them for Warner Chilcott, the banks are on the verge of cashing in on the deal.
Women's healthcare specialist Warner Chilcott Holdings Co Ltd is now poised to raise $1.27 billion on September 20 with an offering of 70.6 million shares, in what would be one of the largest IPOs of the year.
At the midpoint of a range of $17 to $19 per share, Warner Chilcott would have an initial market capitalisation of $4.15 billion. The buyout group will be left with a combined 56 percent stake in the company, if the underwriter option is fully exercised.
Credit Suisse Group and J.P. Morgan Chase & Co, together with Bain Capital LLC and Thomas H. Lee Partners LP, won a heated auction for Warner Chilcott in October 2004 for about $3 billion. "They're getting paid and will keep their equity position," said Ben Holmes, publisher of Morningnotes.com, an independent research firm in Boulder, Colorado.
The banks and their private equity allies sought the drug maker, which also develops dermatology products, for its strong cash generation and expansion opportunities. While the IPO is a good deal for Credit Suisse and J.P. Morgan, whose securities arms are two of the four lead managers on the deal, the company may not be such a good buy for investors, Holmes said.
The company's product line is anchored by hormonal contraceptive and dermatology drugs that generate continuous revenues as opposed to medications taken only long enough to treat an illness, Holmes said. But Warner Chilcott took on about $2 billion in debt after the acquisition, resulting in $91 million in interest expenses through the first half of this year alone.
IPO proceeds will help pay down debt, buy back preferred shares and pay a $27 million termination fee, according to documents filed with the Securities and Exchange Commission. "The company is not turned around in the sense it's new and improved," Holmes said. "It is turned around in the sense they buffed up a used car, put it on a lot and hope someone buys it."
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