Actavis said the combined firm will have about $15 billion in annual sales, rivaling big pharma Bristol-Myers Squibb (BMY). Sales will be roughly split between branded and generic drugs.
Actavis will pay $26.04 plus 0.3306 share per Forest Labs share. That's equal to $92.65 as of Tuesday's close, following Actavis' 5% gain to 201.47. Forest Labs shot up 27.5% to 91.04.
"Today, we created a new kind of specialty pharmaceutical company, and one that's really grounded in something different: a generic DNA," Actavis CEO Paul Bisaro said on a conference call discussing the deal. "It will be focused on continuing to provide high-quality products efficiently and cost-effectively, including an extraordinary array of important specialty branded products, a worldwide portfolio of generic products, OTC (over-the-counter) products and, ultimately, biosimilar products to our global customer base.
Actavis President Sigurdur Oli Olafsson highlighted Forest's (FRX) central-nervous-system franchise, led by dementia drug Namenda's $1.4 billion in yearly sales. He also pointed to Forest's presence in gastrointestinal and respiratory drugs.
Actavis expects $1 billion in annual operating and tax savings, and double-digit accretion to EPS in 2015 and 2016.
Buyout Boom
The buyout caps a busy 18 months for both firms. In 2012 Actavis, then known as Watson Pharmaceuticals, was doing well financially but facing a post-patent cliff, as most of its biggest blockbusters had already gone generic . Watson globalized by merging with Europe's Actavis — and taking its name — and then dramatically expanded its branded portfolio in 2013 by buying specialty pharma Warner Chilcott for $8.7 billion.
Such acquisitiveness has been common in specialty pharma, with deals driven by the desire to domicile in Ireland to lower taxes (which the Warner Chilcott buy accomplished) and by tempting targets sitting around while big pharma downsizes.
"When you look across the spec pharma space, we did expect more consolidation," Morningstar analyst Michael Waterhouse told IBD. "I think the size of this deal might be a bit of a surprise, especially because less than a year ago they announced the Warner-Chilcott deal.
Forest Had Acquired Aptalis
Forest Labs CEO Brent Saunders has been a key player in industry consolidation. He took his job less than five months ago, after his stint as head of Bausch & Lomb ended in the contact-lens giant's sale to Valeant Pharmaceuticals (VRX), another specialty pharma that's been a serial acquirer. He succeeded longtime CEO Howard Solomon, who left after a bitter public feud with activist investor Carl Icahn. On Tuesday, Icahn crowed on Twitter that the deal "proves again that activism works.
Forest recently closed a $2.9 billion buyout of Aptalis, another gastrointestinal specialty player. On the conference call, Cowen analyst Ken Cacciatore commented on Forest's "under-utilized commercial platform" and asked why Actavis didn't buy Aptalis directly instead of via Forest.
"I don't think we can overemphasize the value of the primary-care salesforce that has been provided by Forest," Bisaro said. "We've always talked about not being in primary care, and that's not because we didn't want to be.
In a research note, however, Leerink analyst Jason Gerberry wrote that the bet on primary care was bringing on investor pushback. If the Namenda rollout underperforms, he wrote, "given that FRX's pre-existing partnerships are predicated on maintaining a strong presence in primary care, we question the extent to which ACT can further scale back the cost structure beyond the guided cost synergies.
Gerberry doesn't expect competing bids, but Cantor Fitzger ald's Irina Rivkind wrote that she wouldn't rule it out, given Forest's "young portfolio and opportunity for operational synergies."
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