Actavis to acquire Forest Laboratories for $25 billion

Actavis Plc, the world's third-largest generics prescription drug manufacturer, yesterday struck a $25 billion cash-and-stock deal to acquire Forest Laboratories, a transaction which will combine two of the world's fastest-growing specialty pharmaceutical companies.

The deal would potentially be the largest in the pharmaceutical sector so far this year and also the largest acquisition ever by Actavis.

Under the terms of the deal, Forest shareholders will receive $26.04 in cash and 0.3306 Actavis share for every Forest share, equivalent to a total of $89.48 per share, representing a premium of 25 per cent from Forest's Friday closing stock price.

The acquisition is expected to generate operating and tax synergies of around $1 billion within three years following the close and generate free cash flow in excess of $4 billion in 2015.

The merged company would have a market value of $52.7 billion and anticipated 2015 revenues of over $15 billion.

The transaction is a big win for all shareholders of Forest, especially billionaire activist investor Carl Icahn, who has fought two proxy battles in order to change the company's board and strategy.

''Great result for ALL $FRX (Forest Labs) shareholders-proves again that activism work,'' Icahn tweeted yesterday.

The deal will rake in around $1.7 billion for Icahn, the second-largest shareholder in Forest with around 11 per cent stake.

The combined company will create blockbuster product franchises in the CNS, women's health, gastroenterology, urology and cardiovascular therapeutic categories and will have emerging and sustainable portfolios in infectious disease, respiratory, cystic fibrosis and dermatology therapeutic categories.

Actavis said the merged company will have investment in new product development in excess of $1 billion on an annual basis and add more than a half dozen near- and mid-term R&D products to Actavis' development portfolio.

Five Forest products are at the NDA stage of development, including treatments for Alzheimer's disease, cardiovascular disease, infectious disease, as well as Schizophrenia and bipolar disorders and treatments for COPD.

Actavis has grown to be a $33.4 billion company by market value through aggressive acquisitions – it's seventh since January 2013.

It paid $5 billion last year to buy Irish specialty pharmaceutical company Warner Chilcott Plc. Including debt, the deal was for $8.5 billion. (See: Actavis to acquire Irish specialty drug maker Warner Chilcott for $5 bn)

Actavis was established in January 2013 after New Jersey-based Watson Pharmaceuticals acquired it for around $5.60 billion, in order to expand in Europe.

It develops, manufactures and markets generic, branded generic, legacy brands and over-the-counter (OTC) products in more than 60 countries.

With 30 manufacturing and distribution facilities around the world, including China, India, Indonesia and Singapore, Actavis is ranked among top 10 in 33 global markets.

Actavis has one of the broadest product portfolios and strongest pipelines in the generics industry. It has more than 750 molecules in 1,700 dosage combinations marketed globally through operations in more than 60 countries and around 40 per cent of its generic drug revenue comes from outside the US.

Actavis Specialty Brands, formerly known as the Global Brands business, markets more than 40 brand pharmaceutical products, primarily in the US.

Forest Laboratories, which last month acquired privately-held specialty pharmaceutical firm Aptalis for $2.9 billion, caters largely to the US market.

The company's branded drug portfolio covers five key therapeutic areas - central nerve system, cardiovascular, gastrointestinal, respiratory, and anti-infective.

Its best-known branded drugs are antidepressant drug Lexapro and dementia treatment drug Namenda.

Its revenue in the last fiscal year was around $3.1 billion.

"With this strategic combination, we create an innovative new model in specialty pharmaceuticals leadership, with size and scale, a balanced offering of strong brands and generics, a focus on strategic, lower-risk drug development, and - most important - the ability to drive sustainable organic growth," said Paul Bisaro, chairman and CEO of Actavis.

Brent Saunders, CEO and president of Forest, said, "This compelling combination gives us more optionality to drive future growth and sustainable shareholder value due to our expanded geographic and therapeutic presence, ability to drive new product flow through R&D, strong balance sheet and consistent cash flow.''

The combined company will be led by Paul Bisaro, and three members of the Forest board will be named to the Actavis board following the close.

The deal, which is expected to close in mid-2014, has a breakup fee of about 3.5 per cent of the equity value of each company.