Actavis Stakes $25B on Branded Drugs With Forest Buy

NEW YORK (The Deal) -- Dublin-based generic drug company Actavis (ACT) on Tuesday unveiled a $25 billion agreed cash-and-stock offer for New York rival Forest Laboratories (FRX) to expand in branded drugs as a pharmaceuticals consolidation continues.

Actavis, which has it main operations in Parsippany, N.J., said it would pay 0.3306 of its own shares plus $26.04 in cash, valuing Forest shares at $89.48, a 25% premium over the target's Monday close. The fusion would create a company with $15 billion in sales this year.

"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," said Actavis Chairman and CEO Paul Bisaro in a statement.

Both boards have approved the transaction, which comes on the heels of Actavis' $8.5 billion acquisition of specialty pharmaceutical company Warner Chilcott plc last year. Actavis hopes Forest's broad U.S. footprint will allow it to market many of the branded drugs it won in the Warner Chilcott deal to the world's biggest market.

The merger will leave Actavis with blockbuster drugs - products with sales above $1 billion- across several areas, including central nervous system, gastroenterology, urology, cardiovascular and women's health. Actavis expects the deal to boost non-GAAP earnings by double digits in 2015 and 2016, and to generate about $1 billion in operating and tax synergies alone, before any manufacturing synergies or revenue benefits.

Global drug companies have been beefing up for years as governments tighten heathcare budgets and insurance companies and hospital networks team up to gain bargaining power. Most recently, Cardinal Health Inc. offered to buy private equity-backed AssuraMed Holdings Inc., for $2 billion to tap the target's home healthcare activities for its disposable medical products.

Last year, Dublin's Shire plc on Monday agreed to buy ViroPharma Inc. for $4.2 billion takeover to expand its portfolio of treatments for rare ailments.

Actavis' name is actually the result of the harried dealmaking - formerly known as Watson Pharmaceuticals, it bought Zug, Switzerland-based Actavis in 2012 for $2.9 billion in cash and debt and changed its name. It also adopted its Dublin home base for tax purposes.

Actavis Chairman and CEO Bisaro will retain his role in the expanded company, with Forest CEO and president Brent Saunders joining the board.

Forest will have three spots on the combined company's 11-seat board.

"The acquisition builds on our blockbuster line call strategy in CNS and GI and dramatically extends our reach beyond the U.S. market," Actavis' Saunders said in a statement.

The deal comes nearly a little over a year after activist investor Carl Icahn criticized Forest Laboratories for poor planning as it faced generic competition. Talks with the company ultimately led to him winning the right to appoint two board seats to help steer the company in the direction he wanted.

"Proves again that activism works," Icahn wrote on his Twitter feed in regards to the agreement.

Actavis said it would initially pay for the deal with loans from Bank of America Merrill Lynch and Mizuho Bank Ltd. It expects free cash flow generation of more than $4 billion in 2015 to allow it to cut borrowings rapidly.

Actavis took financial advice from Greenhill & Co. and Latham & Watkins LLP provided counsel. JPMorgan Chase & Co. acted as financial adviser to Forest, with Wachtell, Lipton, Rosen & Katz handling legal details.

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