(Adds CEO quotes from interview, paragraphs 5-7)
By Caroline Humer and Esha Dey
Feb 18 Generic drugmaker Actavis Plc
said on Tuesday it would buy Forest Laboratories Inc for
about $25 billion in cash and stock, giving it a major focus on
higher-margin, branded treatments for Alzheimer's, hypertension
and other disorders.
The deal also means a major payday for activist investor
Carl Icahn, the second-largest shareholder at Forest Labs, who
waged two proxy battles and threatened a third to change its
leadership and strategy.
Actavis said it would pay the equivalent of $89.48 per
share, representing a premium of 25 percent to Forest's closing
price on Friday. The offer comprises $26.04 in cash and 0.3306
Actavis share for every Forest share.
Actavis started on its path to the $25 billion deal less
than two years ago. Formerly known as U.S.-based Watson
Pharmaceuticals, it announced a plan to buy Swiss-based Actavis
for about $5.6 billion. It changed its name to Actavis and last
year bought Ireland's Warner Chilcott for $8.5 billion, allowing
it to relocate to Dublin, where it benefits from a significantly
lower tax rate.
The new deal grew out of a dinner meeting between Actavis
Chief Executive Officer Paul Bisaro and Forest CEO Brent
Saunders during the JPMorgan Healthcare Conference in San
Francisco last month.
"We weren't really thinking about buying or merging or
getting together. It was really 'let's get to know each other a
bit,'" Bisaro said in a telephone interview. "As Brent and I
came together and talked about this, we realized that combined
we can actually grow faster."
The companies completed the deal over the past weekend,
helped Saunders said, by snowstorms that nearly locked up their
teams in a New Jersey hotel. The Forest buyout, expected to
close by the middle of the year, ranks as one of the top five
pharma deals of the past decade.
Actavis shares rose more than 7 percent on Tuesday as
investors backed the latest step in the company's strategy of
acquiring specialty drugmakers to boost profit margins and
sales. Shares of Forest jumped nearly 30 percent.
"This is a huge win for all shareholders of Forest Labs and
yet another validation of the activist investment philosophy in
general," Icahn, who holds an 11.32 percent stake in Forest,
said in a statement. Since the close of trade on Friday, the
value of Icahn's holding has increased by more than $641
Icahn had criticized Forest for being ill-prepared to
generate growth in the face of looming generic competition for
its biggest drugs and for warnings the company had received from
U.S. health regulators about its marketing.
He helped bring about a management change at the company
last year, when longtime Chief Executive Officer Howard Solomon
retired and was replaced by Saunders, a former Bausch & Lomb
CEO. In January, the company delivered quarterly financial
results well ahead of analysts' expectations. Saunders said he
expects Icahn to continue to be a shareholder in the new
The deal has a breakup fee of about 3.5 percent of the
equity value of each company, Actavis said.
A SURPRISE DEAL
Actavis expects the deal to add to its profits in the
double-digit percentages in 2015 and 2016, including about $1
billion in tax and operating savings. The tax savings are about
10 percent of that, or $100 million, Actavis said.
New York-based Forest, which had a tax rate of 19.5 percent
in its most recent quarter, will pay the combined company's
estimated 16 percent rate. Actavis' purchase of Warner Chilcott
last year and move to Dublin helped lower its tax rate from
around 28 percent to 17 percent.
The addition of Forest will boost specialty drugs to
represent about 50 percent of combined company revenue,
estimated at about $15 billion. North American specialty
pharmaceuticals comprise about 30 percent of Actavis'
stand-alone revenue now, the company said.
"Overall, this was a bit of a surprise, but we've been
expecting more consolidation in specialty pharma," said
Morningstar analyst Michael Waterhouse. He said Actavis, Teva
Pharmaceutical Industries and other generic drugmakers
are on the hunt for branded drugs, such as those for women's
health, in which large drugmakers have lost interest because of
poor sales potential.
Forest brings a diverse portfolio of treatments for
disorders of the central nervous system, digestive tract issues
and women's health. Its branded drugs include Bystolic for high
blood pressure and Linzess for patients with irritable bowel
It faces patent expirations on several of its biggest drugs,
including next year's lapse of marketing exclusivity for
Alzheimer's treatment Namenda. It is trying to protect that
revenue by shifting patients to a longer-acting form of the drug
called Namenda XR, which has its own patent protection,
beginning in August. It also has an advanced pipeline of new
experimental therapies for infectious disease, lung disorders
The status of Namenda may prove tricky for Actavis, which
had sought to sell a generic version of the drug.
"It's a challenging situation," said Siggi Olafsson,
president of Actavis Pharma. "There are a lot of new products
out there, but we know the situation for both sides of the
BMO Capital Markets analyst David Maris cautioned that
Actavis may have trouble managing Forest's sprawling sales
"We don't want to be the grown-ups at the party but we
wonder why Actavis would seek to complete such a large deal when
near- and intermediate-term earnings are, in our view, already
in a good position," Maris wrote in a note to clients. "We
acknowledge the deal frenzy and earnings accretion deal
environment, but are not convinced that such a deal makes
Wellington Management Co is the largest shareholder of
Forest with a 13.8 percent stake.
Greenhill & Co was financial adviser to Actavis, and
Latham & Watkins the legal adviser. Forest was advised by J.P.
Morgan Chase & Co and Wachtell, Lipton, Rosen & Katz.
(Additional reporting by Natalie Grover, Paritosh Bansal,
Olivia Oran and Ransdell Pierson; Editing by Michele Gershberg,
Bernadette Baum and Jonathan Oatis)