Is Warner Chilcott Post Buyout of P&Gs Drug Business a Buy?

Well I was reading the transcript of Mad Money and Cramer was talking about Warner Chillcott (WCRX) buying out P&Gs drug division.

Cramer said this deal will be huge for Warner Chillcott, as it's getting the drug assets of Procter for just 5.7 times its earnings. "This is a massive discount," said Cramer, but also one that makes sense for Procter given its restructuring efforts.

Cramer likened the deal to that of the over-the-counter conglomerate of Chattem (CHTT Quote), which made similar acquisitions from Johnson & Johnson (JNJ Quote),only to see its shares rise 112% one year later.

The deal is an all cash deal for 3.1 billion that will be financed almost entirely with debt. It will also add nearly $1.55 per share to WCRXs earnings. That seems to be a strait up double Warner Chilcotts earnings for an add on of $3.1 billion in debt added on to the $854 million in debt they already have on their books.

One red flag I see is that P&G's pharmaceuticals arm had sales declines according to this. This quarterly report talks about how sales of Acotonel have been under pressure due to increased competition in the osteoporosis space. That means some of the drugs that they bring on board might not be as big a growth driver as Cramer thinks.

Another issue that I see is P&Gs drugs are a quite a bit different then the drugs that Warner Chilcott currently makes. WCRX mostly makes women's health products like oral contraceptives and pills to treat menopause. They also make drugs that treat psoriasis and acne.

The P&G drugs are to treat osteoporosis, ulcerative colitis, Paget's disease, overactive bladder, and 2 drugs to treat urinary tract infections. So you have to be aware that there could be the potential of integration issues once they complete the deal.

In any case the idea that a company can double its EPS in one deal like this is pretty intriguing. In any case I still need to check what drugs are in the pipeline at both companies before I pull the trigger. WCRX does have a Phase III drug in the pipeline called WC 3016 which is a low dose oral contraceptive. I'm not sure how this drug is different than their two other birth control pills LOESTRIN 24 and FEMCON.