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Greenhill Surges on Actavis Takeover of Forest Labs

Stocks in this article: GHL FRX ACT

NEW YORK (TheStreet) -- If, as the saying goes, investment bankers "eat what they kill" then the financiers at Greenhill & Co. (GHL) are in for a long-overdue feast. Shares Greenhill surged more than 8% in early trading on Tuesday, after the boutique investment bank acted as adviser to Actavis (ACT) in its announced $25 billion takeover of Forest Laboratories (FRX).

The advisory mandate is a major coup for Greenhill, which has struggled amid a corporate merger and acquisition landscape that remains below pre-crisis levels and has been tempered in recent years by market volatility, political uncertainty and C-suite caution.

Advising Actavis in its biggest-ever deal, a cash-and-stock takeover of branded drug-maker Forest Labs, will help boost investor confidence in the advisory boutique. The deal may also prove important to Greenhill's bottom line.

According to Freeman Consulting Services, a boutique consulting and research firm, fees paid by Actavis to its advisers are expected to be between $50 million and $59 million. Greenhill is listed as Actavis' financial adviser, while law firm Latham & Watkins is the company's legal adviser. For context, a fee in excess of $50 million on the Actavis deal would represent over 15% of Greenhill's 2013 revenue.

Fees paid to Forest Labs advisers are forecast by Freeman & Co. to come in at between $55 million and $65 million. JPMorgan is Forest Labs legal adviser while Wachtell, Lipton, Rosen & Katz is its legal adviser.

Greenhill's shares were rising to $52.81 in early Tuesday trading on news of the deal and the firm's involvement.

Hedgeye Research analyst Jonathan Castelyn said on Twitter the mandate was a step in the right direction for Greenhill. Excluding dividends, shares in Greenhill have fallen 13% over the last 12 months.

Actavis also has bridge loan commitments from BofA Merrill Lynch and Mizuho Bank pending execution of its final financing plans, the company said. (Freeman Consulting Services didn't have number on fees that Actavis might pay to banks underwriting debt as part of the cash and stock offer). Typically, those arranging fees could be around 2% to 2.5% of the total amount for bonds or loans issued by a company.

In the merger, shareholders of Forest will receive 0.3306 a share of Actavis common stock and $26.04 in cash for each share of their shares. The deal will include an election mechanism for Forest shareholders to elect all-stock or all-cash consideration, with the stock consideration expected to represent a tax-free exchange.

Forest shareholders are expected to own approximately 35% of the combined company on a pro forma basis.

Actavis shares were rising more than 6% in early Tuesday trading to $204.56 a share. Forest Labs shares were trading higher by more 29% in early trading at $92.21.

Actavis $25B Forest Labs Deal Not Just About Carl Icahn

Actavis was Among TheStreet's Top 5 Corporate Dealmakers Heading into 2014

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