(Updates with closing share prices in fifth paragraph.)
Feb. 18 (Bloomberg) -- Actavis Plc, the world’s second- largest generic-drug maker by market value, agreed to buy Forest Laboratories Inc. for about $25 billion in a deal that will transform it into a developer of brand-name drugs.
The deal is a win for billionaire investor Carl Icahn, Forest’s second-largest holder who gained seats on the company’s board in 2012 and 2013, and pushed for a sale. Forest investors will get cash and stock valued at $89.48 a share, based on the Feb. 14 closing price, the companies said today in a statement.
The deal is Actavis’s biggest ever. It was the most active buyer of drug companies over the past three years, making $14.4 billion of purchases, according to data compiled by Bloomberg. The acquisition will change Actavis’s mix of sales, provide the combined drugmaker with more than $1 billion in cost savings, and bring Forest’s brand-name products to more markets.
“Forest presented an extraordinarily unique opportunity to create a new kind of company,” said Paul Bisaro, Actavis’s chief executive officer. He will run the combined drugmaker.
Actavis, based in Dublin and run from Parsippany, New Jersey, rose 5 percent to $201.47 at the close in New York. Forest, based in New York, climbed 28 percent to $91.04.
Actavis depends on mergers and acquisitions to sustain earnings growth, since developing drugs through research and development is so costly, said Ori Hershkovitz, a partner at Sphera Funds Management Ltd.
“They have promised the market that they would do a large amount of deals to keep the accretion alive,” said Hershkovitz, who’s based in Tel Aviv and doesn’t own Forest or Actavis shares. “If you can’t do a large amount of R&D, there’s only one way to grow and that’s through M&A.”
With a purchase of Forest, Actavis will add the Alzheimer’s drug Namenda and blood-pressure pill Bystolic to its product lineup. The acquisition will add to earnings immediately, Actavis said.
“This is a company that’s trying to create balance between brands and generics,” said Brent Saunders, Forest’s Chief Executive Officer. “We believe, over time, that being able to offer customers a variety of products in both branded and generics will be something that will give us an advantage over many of our competitors,” he said on a conference call discussing the sale.
After investing in Forest in 2009 and waging proxy battles starting in 2011, Icahn said in a statement that he was pleased with Saunders’ leadership.
“To quote Shakespeare, ’All’s well that ends well,’ and we applaud Brent Saunders, who, in less than 6 months at the helm, has helped to bring about in my opinion one of the best pharma mergers in the last decade,” Icahn said.
Saunders, the former CEO of Bausch & Lomb Inc., took over leadership of Forest in September with support from Icahn. Forest said last month it reached an agreement to buy Aptalis Pharma Inc. for $2.9 billion to add treatments for gastrointestinal ailments and cystic fibrosis. He will join the Actavis board.
The deal came together rapidly, Saunders said. “We did not run a full sales process,” he told investors on the conference call. “It was something we did very carefully but very quickly. Our board felt this was in the best interest of our shareholders.”
The purchase fits with Actavis’s desire to expand in branded pharmaceuticals and become less focused on generics, said David Maris, an analyst at BMO Capital Markets in New York. Investors probably will look favorably on it given the “deal frenzy environment,” he said.
Still, Maris said he wasn’t convinced the purchase makes strategic sense because Actavis’s financial outlook is already solid and overseeing the integration will be difficult, Maris said.
“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,” he wrote in a report before the announcement.
Actavis was formerly known as Watson Pharmaceuticals Inc. The company in 2012 acquired Zug, Switzerland-based Actavis and took on the Actavis name. Last year, it purchased Warner Chilcott Plc for $9.2 billion including net debt in a deal that enabled the company to expand in women’s health and urology. That purchase gave the company an Irish corporate domicile that lowered its tax rate to 17 percent from 37 percent.
Greenhill & Co. advised Actavis, while JPMorgan Chase & Co. advised Forest. Bank of America Merrill Lynch and Mizuho Bank have committed to providing bridge loans while Actavis prepares financing plans, the companies said.
A block of 5,000 options betting on a 28 percent jump in Forest’s shares that cost $2.55 million to buy last week more than doubled in value to $6 million today after Actavis agreed to buy the drugmaker.
The calls, which expire in January 2016, traded on Feb. 14 for $5.10 each, according to data compiled by Bloomberg. Only 11 of the contracts were outstanding on Feb. 13. Forest rallied 30 percent to $92.65 at 9:45 a.m. in New York today.
Forest is an “excellent” takeover candidate for a larger pharmaceutical company and might get a “huge premium” thanks to its pipeline of drugs, Icahn said in August 2012. The company hasn’t been able to fully realize its potential because of a lack of scale and inefficient sales structure, he said in a letter to Forest shareholders at the time. Forest shares have more than doubled since then.
The drugmaker added an Icahn representative to its board last year to avoid a third proxy fight in as many years. Icahn’s qualms included the potential for the son of then-CEO Howard Solomon, who had held the job for more than 30 years, to succeed him.
Icahn has a track record of investing in drugmakers and profiting from their turnarounds or sales to larger companies. He invested in ImClone Systems Inc., which was sold to Eli Lilly & Co. in 2008 for $6.3 billion, and Genzyme Corp., sold to Sanofi for $19.4 billion in 2011, according to data compiled by Bloomberg.
Other Icahn targets include Amylin Pharmaceuticals Inc., which was bought by Bristol-Myers Squibb Co. for $5.1 billion in 2012, and Biogen Idec Inc., whose stock has almost tripled in the past two years, the data show.
--With assistance from Meg Tirrell in New York. Editors: Angela Zimm, Reg Gale