Acquisition-hungry Actavis ($ACT) has its sights set on a $25 billion buyout of Forest Labs ($FRX), a deal that creates a powerhouse biopharma company with an extensive generics business, branded drugs and an ambitious R&D operation.
For Actavis, the deal delivers a new set of drugs for marketing, part of its core M&A strategy as Watson first snapped up Actavis, took the Swiss company's name and then engineered a $5 billion buyout of Warner Chilcott, gaining an Irish domicile and the considerable tax advantages that go with it. More recently, Actavis was rumored to be in the hunt for Pfizer's ($PFE) generics business.
The deal would deliver a sizable premium for Forest's investors, including Carl Icahn, who pushed hard for a sale about two years ago.
"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," said Brent Saunders, CEO of Forest, 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.
Generics giant Actavis used buyouts to add products but doesn't do R&D. Forest, though, is a pharma company of a different stripe. Forest has had a big interest in drug research as it worked to beef up sales of branded drugs. More recently, though, its R&D budget has been shrinking as Forest pushed sales of a new generation of therapeutics. The company recently reported that quarterly sales had jumped 24.9%, with bigger numbers for its
Forest recently acquired Aptalis for $2.9 billion and picked up the antipsychotic Saphris, which is being relaunched this month.
R&D spending, meanwhile, dropped 25% for the last quarter as Forest pursued a reorganization of its research efforts dubbed Project Rejuvenate. Overall, new CEO Saunders has targeted $500 million in reduced R&D spending, with layoffs accounting for a large portion of the cuts. Forest recently experienced a bitter setback with the FDA's rejection of the schizophrenia drug cariprazine. Regulators demanded more trial data, which is exactly the kind of risk that Actavis is known for avoiding.
The Wall Street Journal first broke the story today.