Several weeks after the $6.5 billion acquisition of brand drugmaker Cephalon, Teva is gearing up to perform the synergy between the two companies and these days the integration activity as at its peak.
Calcalist has learned that Teva, headed by Shlomo Yanai, is preparing for a layoff round in which 1,500 employees will be sent home. Several received notice just after the deal was finalized last October.
Most of the dismissed workers are Cephalon employees who work in departments overlapping Teva's. Cephalon has a generic division, Mepha, located in Switzerland, which is known mainly in Europe. It appears that a large number of the division's employees will be dismissed following the merger with Teva as Teva's generics activity constitutes some 70% of its income.
As of December 31, 2010, Cephalon had 3,700 employees, most in the United States, thus Teva will be firing about 40% of Cephalon's personnel before the merger takes place.
Teva estimates that is will benefit from a $500 million synergy following the acquisition with dismissals constituting most of the sum as Teva expects to slash sales, marketing and management and general costs by $300 million; research and development costs by $120-$150 million by removing duplicate operations; and the remaining $50-$80 million by reducing production costs.
Cephalon employees who will be spared the rod are those who belong to the company' brand drug activity which includes drugs for nervous system disorders, cancer treatment and pain medication.
Up to the finalization of the synergy process, Cephalon is expected to contribute some $134 million to Teva's fourth quarter net profit and a similar sum to Teva's net profit for the first quarter of 2012.
Once Teva enters its second quarter of 2012, however, Cephalon's direct contribution to its profits will shrink considerably and in the long run, will depend on the success of its pipeline products and on the extent to which Teva is able to cut costs after dismissing Cephalon employees and consolidating activities.
Meanwhile, Teva is scheduled to hold a $4.5-$5 billion placement Thursday night. Prior to the placement, Teva's bonds were rated A3 by Moody's and a correlating A- by S&P.
Teva aims to use $3.75 billion of the funds raised to repay part of the $6.5 billion loan it took for the acquisition of Cephalon. The funds will also be designated to pay off Cephalon's bonds which are due on June 2015. The remaining funds will be used for Teva's operating costs.
Teva will offer five bond series with maturity dates spanning the period between 2013 and 2021.
Teva said in response to this report, "The integration with Cephalon began a short while ago. During the process, as part of the synergy common in such processes, measures will be taken to reduce the employee list.
"At this point, no comment will be made regarding the number of employees or the areas that will undergo change."
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