Warner Chilcott Deal Promises 4x Return For Sponsors

The all-stock merger offer from Actavis values the equity in the company at about $5 billion, after breaking out $3.5 billion in debt. The $8.5 billion total deal value for Warner Chilcott, a maker of women’s dermatology and healthcare products, amounts to nearly three times the $3.1 billion the sponsors paid for the company in 2005, when it was taken private.

The private equity buyers originally put $1.28 billion of equity into Warner Chilcott as detailed in a regulatory filing. All told, Warner Chilcott earned an investment multiple near 4 times, according to a source.

The three sponsors’ remaining stake in Dublin-based Warner Chilcott amounts to 9 percent percent of the company’s 250.5 million ordinary shares outstanding after a secondary offering last year, according to the company’s 2012 annual report. Actavis Inc. last month offered an all-stock deal valued at $20.08 a share for Warner Chilcott based on its closing share price on May 17.

Warner Chilcott was taken private eight years ago at a price of $16.17 a share. The buyers included Bain Capital LLC, THL Partners, J.P. Morgan Chase & Co.’s private equity unit and DLJ Merchant Banking, now part of Credit Suisse Group (which earlier fully exited.)

After the deal, the sponsors made a series of public market transactions that raised billions in proceeds. On Sept. 21, 2006, Warner Chilcott held an initial public offering at a price of $15 a share. The firm raised $1.1 billion by offering 70.6 million shares. Nearly all of the proceeds went toward paying down debt.

In 2009, the company priced a secondary offering of 20 million common shares at $22.25 per share for total proceeds of $445 million. Bain Capital sold 3.95 million shares, while DLJ Merchant Banking, JPMorgan Capital and THL Partners sold 4.23 million shares each.

In 2011, the company offered 25 million shares at $23.25 a share for proceeds of $581 million. Bain sold 6.9 million shares, while J.P. Morgan and THL Partners sold 7.9 million shares.

On Sept. 7, 2012, Bain Capital, THL Partners and J.P. Morgan Chase Partners sold about 40.9 million shares of Warner Chilcott in a secondary offering priced at $13.10 each for combined gross proceeds of $536 million. Each sponsor sold 14 million shares in the offering for gross proceeds of $183.4 million.

Warner Chilcott also floated deft offerings in recent years that led to big payouts to shareholders. Among those, Warner Chilcott paid a special cash dividend of $8.50 a share, or approximately $2.1 billion, funded through the issuance of additional term debt and senior notes totaling $2.3 billion, in 2010.

Last August, Warner Chilcott declared a dividend of $4 a share, or about $1 billion, which was funded from new term loans and cash on hand.