Actavis To Buy Forest Laboratories For $25 Bln In Cash And Stock

(RTTNews) - Specialty pharmaceutical company Actavis Plc (ACT) will acquire rival drug maker Forest Laboratories Inc. (FRX) for about $25 billion in cash and stock, the two companies said Tuesday. The deal is expected to create a specialty pharmaceutical company with combined annual revenues of over $15 billion targeted for 2015.

Under the definitive merger deal, shareholders of Forest Laboratories, headquartered in New York, will receive $89.48, comprising $26.04 in cash and 0.3306 Actavis shares for each share of Forest common stock held by them. The consideration represents a 25 percent premium to Forest's closing stock price of $71.39 on February 14.

The transaction will include an election mechanism for Forest shareholders to elect all-stock or all-cash consideration, subject to pro-ration in accordance with the terms of the merger agreement.

Forest Laboratories' shareholders are expected to own about 35 percent of the combined company on a proforma basis. The transaction is expected to close in mid-year 2014, pending approval of the shareholders of both companies as well as regulatory approvals.

Actavis, the world's second-largest generic drug maker by market value, has global headquarters in Dublin, Ireland and U.S. administrative headquarters in Parsippany, New Jersey, USA. In October 2013, the company completed the acquisition of Warner Chilcott plc, a provider of branded treatments for urology and gastroenterology conditions. Forest Laboratories is headquartered in New York.

Paul Bisaro, Chairman and CEO of Actavis said, "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."

Brent Saunders, CEO and President of Forest Laboratories said, "The acquisition builds on our blockbuster line call strategy in CNS and GI and dramatically extends our reach beyond the U.S. Market. 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."

On a pro forma combined basis for full year 2014, the merged company will have a CNS franchise valued at $2 billion, Gastroenterology and Women's Health franchises each valued at about $1 billion, a Cardiovascular franchise that generates about $500 million, and Urology as well as Dermatology/Established Brand franchises, each approaching sales of $500 million a year.

The combined company will be led by Paul Bisaro, Chairman and CEO of Actavis. The integration of the two companies will be led by the senior management teams of both Actavis and Forest, with integration planning expected to begin immediately in order to assure a rapid transition to a single company following close.

Actavis has agreed that three members of Forest's board of directors will be named to the Actavis board following the close.

Actavis expects the acquisition to immediately add to the adjusted earnings and generate double-digit accretion in 2015 and 2016, including about $1 billion in operating and tax synergies to be realized within three years following the close. The combination of the two companies are expected to generate strong free cash flow in excess of $4 billion in 2015.

The combination of Actavis and Forest Laboratories will result in specialty brand revenues comprising about 50 percent of total combined company pro orma revenues, compared to about 30 percent of North American specialty brand revenues for standalone Actavis.

Actavis currently has bridge loan committments from BofA Merrill Lynch and Mizuho Bank, pending execution of its final financing plans.

Billionaire Carl Icahn, whose Icahn Associates owns 11.4 percent of Forest Laboratories' shares, had began agitating at Forest Laboratories since 2011. However, Forest Laboratories averted a proxy fight with the activist investor and appointed Saunders as CEO in September 2013.

In early February 2014, Forest Laboratories completed its $2.9 billion acquisition of privately-held specialty pharmaceutical company Aptalis Holdings Inc. from private equity firm TPG Capital LP. Aptalis is focused on gastrointestinal disorders and cystic fibrosis.

Greenhill & Co. is serving as financial advisor to Actavis, while Latham & Watkins LLP is serving as its legal advisor. J.P. Morgan is serving as financial advisor to Forest, while Wachtell, Lipton, Rosen & Katz is serving as its legal advisor.

ACT closed Friday's trading at $191.88. In Tuesday's pre-market, the stock is adding $23.35 or 12.17 percent to $215.25.

FRX closed Friday's trading at $71.39. In Tuesday's pre-market, the stock is up $23.66 or 33.14 percent to $95.05.