Forest Laboratories, Inc.
), a Zacks Rank #1 (Strong Buy) stock, soared 27.52% on news that
the company will be acquired by
). The companies have signed a definitive agreement under which
Actavis will acquire Forest Labs for a cash and equity
transaction valued at about $25 billion or $89.48 per share.
Each Forest Labs share will be entitled to a cash payment of
$26.04 and 0.3306 Actavis shares. The offer price represents a
25% premium to Forest Labs' closing price on Feb 14. Once the
deal closes in mid-2014, Forest Labs' shareholders will own 35%
of the new company.
Why Forest Labs?
Forest Labs has well-established franchises in the central
nervous system (CNS), cardiovascular and respiratory markets, as
well as R&D programs that address a wide range of health
conditions. Well-known products include Namenda (Alzheimer's
disease) and Bystolic (hypertension). Forest Labs also has a wide
range of new products in its portfolio.
Earlier this month, Forest Labs acquired U.S. based
privately-held Aptalis for $2.9 billion with the intention of
strengthening its position in the gastrointestinal market in the
U.S. and Canada and the cystic fibrosis market in Europe.
Although Forest Labs is currently facing generic competition
for Lexapro (depression) and will face generic competition for
Namenda IR, the company has been taking steps to combat the
impact of genericization. Forest Labs has a deep pipeline and was
successful in gaining approval for several new products.
Moreover, a new CEO, Brenton L. Saunders, was appointed last
year and he announced several initiatives to streamline
operations and cut down costs. Saunders was at the helm of Bausch
+ Lomb when the company was acquired by
Actavis, which was previously known for its strong presence in
the generics market, is looking to strengthen its branded product
portfolio. Initially known as Watson Pharmaceuticals, Inc., the
company changed its name to Actavis following the Oct 2012
acquisition of Actavis Group. Then last year, the company
acquired Warner Chilcott plc which helped boost its branded
products portfolio and provided it with the tax advantages that
go with an Irish domicile.
Now with the Forest Labs acquisition, Actavis expects the
combined company to have a $2 billion CNS franchise, a $1 billion
gastroenterology franchise, a $1 billion women's health
franchise, a $500 million cardiovascular franchise and urology
and dermatology/established brand franchises approaching annual
sales of $500 million each.
Actavis' current CEO will continue to lead the combined
company. Meanwhile, Saunders will be joining the Board.
Deal to Be Accretive
Actavis expects the acquisition to drive double-digit
accretion to earnings in 2015 and 2016. More than $4 billion of
free cash flow will be generated in 2015 which will allow the
company to de-lever its balance sheet rapidly.
Operating and tax synergies of about $1 billion will be
realized following three years of close. This does not include
any manufacturing or revenue synergies. Actavis intends to invest
more than $1 billion every year on developing branded, generic
and biosimilar products.
Actavis has been on an acquisition spree over the past few
quarters having successfully completed two big deals. The
decision to acquire Forest Labs is in line with the company's
strategy of building its branded product portfolio. With a fewer
number of blockbuster products slated to lose patent protection
in the coming years, quite a few generic companies have been
focusing on strengthening their branded products offerings.
The Forest Labs acquisition will push up Actavis' branded
products revenues to 50% of total combined revenues from the
current level of 30% of the standalone company's revenues. The
acquisition will lead to the creation of a specialty company with
sales of more than $15 billion per year, a diversified portfolio
and a presence in different geographical areas.
The Forest Labs acquisition will also bring about significant
synergies and boost earnings and revenues. However, the looming
Namenda patent expiry in 2015 remains a matter of concern.
Actavis currently carries a Zacks Rank #2 (Buy). Shares were
up 5% on the acquisition news. Another well-ranked stock in the
health care sector is
), which carries a Zacks Rank #1.
ACTAVIS PLC (ACT): Free Stock Analysis Report
AUXILIUM PHARMA (AUXL): Free Stock Analysis
FOREST LABS A (FRX): Free Stock Analysis
VALEANT PHARMA (VRX): Free Stock Analysis
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