Business Case Studies & Business Publications

Teva Pharmaceuticals: Pricing the 2016 B...

Schill, Michael J....

Case

Teva Pharmaceuticals: Pricing the 2016 Bond Offering

Schill, Michael J.; Yates, Adam

F-2028 | | 18 pages Case

Collection: Darden School of Business

Add To Cart Buy Now

Product Details

This case examines the July 2016 decision by Israeli pharmaceutical Teva Pharmaceuticals Industries Limited (Teva) to raise USD19.5 billion in cash through a multicurrency bond offering to finance an acquisition that would firmly solidify Teva’s position as the largest generic pharmaceuticals manufacturer in the world. In light of a pending acquisition of Actavis, the generic drug manufacturing arm of Irish-US pharmaceutical Allergen Inc. (Allergen), Teva management planned to sell USD19.5 billion in bonds at various maturities from 2 years to 30 years and in three different currencies (US dollar, euro, and Swiss franc). In the context of a significant cross-border acquisition, students are introduced to the pricing of corporate bonds with the invitation to price (specify the coupon rate) on Teva’s bold global offering. This case is taught at Darden in the core finance curriculum of the MBA program in order to introduce the concept of the risk premium, risk, and the mechanics of pricing of corporate bonds.

The case is designed to accomplish the following potential teaching objectives: (1) Introduce the risk-return paradigm in finance. (2) Motivate the concept of a risk premium and the notion of a cost of debt by exposing students to estimating default risk, credit ratings, and credit spreads. (3) Review yield curve principles and mechanics. (4) Practice bond math and credit market terminology. (5) Establish institutional detail for the public security offering process.