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From acquirer to acquired
NEW YORK—Actavis plc and Forest Laboratories Inc. have announced the signing of a definitive agreement by which Actavis will acquire Forest for approximately $25 billion, or $89.48 per share ($26.04 in cash and 0.3306 shares of Actavis stock for each share of Forest stock). The transaction price represents an approximately 25-percent premium over Forest’s stock price, and a premium of approximately 31 percent over the company’s 10-day volume weighted average stock price (as of the trading close on Feb. 14). Both companies’ boards of directors have unanimously approved the transaction.
On a pro forma combined basis for full-year 2014, the resulting combined company is expected to see a central nervous system (CNS) franchise worth roughly $2 billion, gastroenterology and women’s health franchises worth approximately $1 billion each, a cardiovascular franchise generating roughly $500 million and urology and dermatology/established brand franchises generating close to $500 million in sales each, annually. In addition, the combined company is forecast to see combined annual revenues of more than $15 billion in 2015, with the deal resulting in double-digit accretion in 2015 and 2016, including roughly $1 billion in operating and tax synergies to be realized within three years following the close of the transaction.
“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,” Paul Bisaro, Actavis’ chairman and CEO, said in a news release regarding the transaction. “Bolstered by one of the deepest and most diversified product portfolios in the industry with an exceptionally strong pipeline, this transaction creates a powerful engine for generating long-term, double-digit revenue and earnings growth.”
Combining Actavis’ and Forest’s U.S. sales forces will create an organization with strong marketing reach in a variety of market segments, and leading product franchises in the areas of central nervous system, gastroenterology, women’s health, urology and cardiovascular therapeutics, with emerging portfolios in infectious disease, respiratory, cystic fibrosis and dermatology.
The deal includes an election mechanism by which Forest shareholders can choose all-stock or all-cash consideration, subject to proration in accordance with the merger terms. Following the deal’s close, Forest shareholders will likely own about 35 percent of the combined company on a pro forma basis. Bisaro will lead the combined organization, with three members of Forest’s board of directors joining the Actavis board.
“The combination of Forest with Actavis creates a specialty company with annual sales of approximately $15 billion, a diversified portfolio and a geographically balanced business,” Brent Saunders, president and CEO of Forest, commented in a statement. “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 terms of the agreement provide Forest shareholders with cash and the opportunity to participate in the future growth of our new, stronger combined company.
“Forest is a great fit with Actavis due to our strong legacy in branded specialty and primary care pharmaceuticals with a best-in-class commercial team, a top-notch drug development organization and a long history of successful partnerships. The acquisition builds on our blockbuster line call strategy in CNS and GI and dramatically extends our reach beyond the U.S. market,” he continued. “By joining forces with Actavis, we become more relevant to key physicians and customers through blockbuster franchises in CNS, women’s health, GI and urology, as well as Actavis’ global generics business.”
Not everyone’s take on the potential acquisition is entirely optimistic, however. Sean Williams at Motley Fool expressed some reservations over the size of the deal, noting that while “Forest Labs has definitely had a number of key wins over the past year and change,” namely with the approvals of Fetzima and Linzess, it is facing patent expiration next year for Namenda, its Alzheimer’s drug, which, as of the last quarter, brought in $401.5 million of the $846.8 million Forest recorded in total sales. “In other words,” Williams pointed out, “Actavis just purchased a company that’s set to lose half of its current revenue stream next year for $25 billion.”
The Actavis-Forest news follows right on the heels of another billion-dollar transaction involving Forest, as the company announced in January that it had entered into a definitive agreement to acquire privately held Aptalis, a specialty gastrointestinal and cystic fibrosis company, for $2.9 billion in cash from Aptalis’ shareholders, including global private investment firm TPG. Aptalis maintains sales and marketing operations in the United States, Canada, France and Germany, with manufacturing operations in North America and Europe.
Saunders noted that “Aptalis is an excellent strategic and financial fit for Forest because of its strong product offerings in two therapeutic franchises that are complementary to Forest—GI in the United States and Canada and cystic fibrosis in Europe. The acquisition of Aptalis helps diversify Forest while advancing our strategy to create blockbuster therapeutic areas.”
The acquisition is expected to be accretive to Forest’s fiscal year 2015 non-GAAP EPS by 78 cents per share, add nearly $700 million to revenues in fiscal year 2015 and result in $125 million in synergies by fiscal year 2016. The transaction is expected to close in the first half of this year, and is subject to regulatory review and customary closing conditions.
Marshall Gordon, an investor at ClearBridge Investments LLC, Forest’s fourth-largest shareholder according to company filings, was approving of the deal, saying that while “it’s bigger than I would have expected,” it also “shows they’re diversifying their earnings base and there’s a tremendous amount of leverage.”