Teva Pharmaceuticals (NasdaqGS: TEVA), the largest publicly traded Israeli company, could join the already hot healthcare mergers and acquisitions race and that could prove meaningful for some pharmaceuticals exchange traded funds.
“Teva has over $10 billion in debt capacity to spend on acquisitions and could go after Mylan (NYSE: MYL), which agreed to buy Abbott Laboratories’ (NYSE: ABT) generic drug unit last year, or St. Louis, Missouri-based Mallinckrodt (NYSE: MNK),” reports Gabrielle Coppola for Bloomberg.
A spate of deal-making has been a primary factor in lifting pharmaceuticals ETFs going back to last year. Those ETFs include the $342 million Market Vectors Pharmaceutical ETF (NYSEArca: PPH) , which along with some of its rivals, was recently in the spotlight due to a bidding war for Salix Pharmaceuticals (NasdaqGS: SLXP). [These ETFs Will Enjoy a Salix Takeover]
PPH, which is up 10% this year, allocates a combined 3.1% of its weight to Mylan and Mallinckrodt. The ETF also features an almost 4.2% weight to Teva. Actavis (NYSE: ACT), PPH’s seventh-largest holding at almost 5% of the ETF’s weight, has also been mentioned as a possible target, though Teva would make for an unlikely suitor because Actavis is almost 60% larger by market value than the Israeli firm.
The $1.1 billion SPDR Pharmaceuticals ETF (NYSEArca: XPH), another pharmaceuticals ETF, that has benefited from industry mergers and acquisitions activity, allocates a combined 6.3% of its weight to Mylan and Mallinckrodt. XPH has surged 14.3% this year. [Assets Keep Flowing to Healthcare ETFs]
In addition to Mylan and Mallinckrodt, several of XPH’s 39 other holdings have been previously mentioned as potential takeover targets.
As Bloomberg notes, Teva investors seem to like the idea of the company making a major acquisition. The company’s U.S.-listed shares are up 8.4% in the past month, helping turn an early year loss into a 7.8% year-to-date gain.
Teva’s surge has helped boost Israel ETFs as well. For example, the Market Vectors Israel ETF (NYSEArca: ISRA) and the iShares MSCI Israel Capped ETF (NYSEArca: EIS) are up an average of 6.2% this year.
Teva is the largest holding in both ETFs, accounting for 25.4% of EIS’ weight an 12.8% of ISRA. Although ISRA has the smaller Teva weight, its healthcare weight of 31.2% is is nearly 600 basis points larger than the same sector’s weight in EIS.
Market Vectors Pharmaceutical ETF