Who knew those little green talking phlegm-people that hawk Mucinex were worth so much? Yesterday, U.K.-based Reckitt Benckiser agreed to buy U.S.-based Adams Respiratory Therapeutics (NASDAQ:ARXT) for $60 per share in cash. That's a 37% premium on Friday's closing price.
The $2.3 billion purchase price is about seven times the $332 million in revenues that Adams racked up -- mostly from sales of Mucinex -- in the fiscal year ending last June. Compare that with Johnson & Johnson's (NYSE:JNJ) $16.6 billion purchase last year of Pfizer's (NYSE:PFE) consumer health-care unit. The unit had sales of $3.9 billion in the previous year, resulting in a purchase price that was just 4.3 times revenue. (We'd prefer to compare the deals on a purchase price-to-free cash flow basis, but only segment sales were available for the Pfizer unit.)
Now, granted, Adams essentially has a monopoly on Mucinex's long-acting guaifenesin, after the FDA declared last May that 20 different companies with products containing the same active ingredient would have to remove the products from store shelves. It also has some potential to increase sales by combining drugs with Mucinex. Even taking those into consideration, it looks to me like Adams' shareholders are getting a pretty good deal at more than 50 times trailing-12-month earnings.
For Reckitt, the purchase is probably justified, since it should help the company move into the U.S. over-the-counter (OTC) market. Reckitt already sells products such as Lysol and Woolite in the U.S., but the purchase of Adams should help it bring its health-care products to the country, which is the largest OTC market in the world. Additionally, since it's already set up in Europe, Reckitt should be able to get Mucinex launched there much more easily than Adams would have been able to do on its own.
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