Report: AstraZeneca kicks tires on Forest, eyes multibillion-dollar deal

A day after it elated investors with a $500 million cost-cutting plan, Forest Laboratories ($FRX) is reportedly fielding buyout interest from pharma giant AstraZeneca ($AZN), discussing a deal that could soar past $15 billion.

As The Financial Times reports, sources close to the pair say the companies have held early-stage discussions about a potential deal, with AstraZeneca retaining investment banks for advice and securing tentative board approval to make a cash offer. For AstraZeneca and its stilted pipeline, the deal makes plenty of sense: Forest has a bevy of late-stage treatments for neurological, cardiovascular and respiratory ailments that could help dull the blow of patent expiries, and AstraZeneca CEO Pascal Soriot is on the record as an open-eared dealmaker.

But if Forest is looking to get bought, why take such a deep dive into boosting share value? In tandem with its planned $500 million in budget cuts, the company approved a $1 billion share repurchase plan, putting $400 million into an accelerated buyback program. That announcement blasted Forest's shares up as much as 13% on Monday, and FT cautions that the company's escalating market value may throw cold water on any buyout talks.

Unless that was exactly Forest's plan. If the company was unsatisfied with AstraZeneca's initial approach, it may well have fast-tracked its reorganization plan to boost its value and force its would-be acquirer to come back with a steeper premium. Forest CEO Brent Saunders is just two months into his tenure and has already set himself apart from his predecessor with a few sweeping moves, enacting a slash-and-spend plan that will saddle the company with $1 billion in new debt and cleave $270 million from its R&D budget.

Underlying Forest's rush to improve its share value is the heavy hand of activist investor Carl Icahn, who repeatedly went to war with former CEO Howard Solomon, accusing the company of dragging its feet and leaving shareholders in the lurch. After a few proxy fights, Icahn got two of his allies on the board, sending Forest's stock price ever upward on the promise of a leaner operation.

- read the report (reg. req.)