Case study
Actavis: Valuation

Prof. Ian Giddy, New York University

The Company
Based in Iceland, Actavis is one of the world's faster growing generic pharmaceutical companies. In mid 2006, the company made a bid for Croatia's leading generics company. The offer was half in cash, and half in shares. Management of the target company advised shareholders not to accept Actavis' bid, which was made in shares. Actavis, they argued, was overvalued and overleveraged, like the Icelandic market as a whole. They pointed to the fact that while the bidder's share price had risen 35% during the past year, earnings were flat.

HSBC was hired by a group of the target company's investors to provide an objective valuation of Actavis, based on the company's projected free cash flows. The financial information they used was as follows:

Free Cash Flows EUR m

Share Value
Revenue 566.00

-Expenses (415.00)

Share price
-Depreciation (30.00)

58 ISK
EBIT 121.00

0.69 EUR @ 84.2
EBIT(1-t) 105.72

+Depreciation 30.00

193662 Mkt cap (isk m)
-CapEx (98.00)

2300 Mkt cap (eur m)
-Change in WC (17.00)

Debt (eur m)
FCFF 20.72

Cost of Capital    
Debt 10-year bond yield 6.00%

Equity Beta

Risk-free Treasury 5.00%

Market Risk Premium (europe)

Growth assumptions

Growth rate

Constant growth model

2-stage growth model

Stage 1 (5 years)

Stage 2 (after 5 years)

Projected Cap Ex expected to be 1/3 2005 level, growing at same rate as revenues
Depreciation = previous year's Cap Ex
Working capital expected to grow at same rate as revenues


1. Use the data given above to calculate the Enterprise Value of Actavis
2. How could you use your estimate to value the company's equity value? | | | | contact
Copyright ©2006 Ian Giddy. All rights reserved.