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Actavis said it will swap 0.16 of a share for each Warner Chilcott share, which would value Warner Chilcott at $20.08 a share. That reflects a 4.5% premium over Friday’s close.
Warner Chilcott shares were trading 1.46% higher at $19.49 in early morning trading. Shares of Actavis rose 2.88% to $129.11.
The announcement came 10 days after Actavis and Warner Chilcott, which makes prescription health-care and dermatology products for women, said they were in early talks over a possible deal.
The Wall Street Journal reported last week that other pharmaceutical companies, including Valeant Pharmaceuticals International (VRX) and Mylan (MYL), were rebuffed when they approached Actavis about potential deals. The paper also said Swiss pharmaceuticals giant Novartis (NVS) was considering its own bid for Actavis.
“We wanted to get bigger in our brand business and this was a perfect opportunity for us,” Actavis Chief Executive Paul Bisaro said during a conference call with analysts. He also declined to comment on reports of potential bidders for Actavis.
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Actavis and Warner Chilcott see their deal closing by the end of the year, creating a new combined company called Actavis PLC. Warner Chilcott shareholders will hold about 23% of the new Actavis, which will remain on the New York Stock Exchange under the symbol ACT.
Actavis expects the combination to add more than 30% to its adjusted per-share earnings in 2014, taking into account projected synergies, and bring combined annual revenue to about $11 billion. The deal would make the new Actavis the third-largest specialty brand pharmaceutical company in the U.S.
In early 2005, Warner Chilcott was taken private in a $3.1 billion deal by Bain Capital, Thomas H. Lee Partners, the private-equity arm of J.P. Morgan Chase (JPM) and DLJ Merchant Banking, which is now part of Credit Suisse (CS).
Parsippany, N.J.-based Actavis was formed in October when Watson Pharmaceuticals acquired Actavis Group for about $5.72 billion.
Warner Chilcott has reported sliding revenue for more than a year, as osteoporosis treatment Actonel lost patent protection in Europe and now faces competition from generic drugs in the U.S.
Sales at Actavis have received a boost from the launch of new generic drugs.