Actavis PLC is in talks to acquire Forest Laboratories, Inc. (NYSE:FRX) for $25 billion, compared to a market cap of about $19.3 billion, report Dana Mattioli, Jonathan D. Rockoff, and Dana Cimilluca for The Wall Street Journal. The deal could be officially announced as early as today, though the exact terms are not set and it seems there is still a chance that one of the sides will back out.
Recent acquisitions by Actavis, Forest Labs
Both pharmaceutical companies have been actively engaged in acquisitions recently. Actavis, which mostly deals with generic medications, bought Warner Chilcott in October 2013 in an all-stock deal to increase portfolio of urology, dermatology, and gastroenterology products. Forest Labs acquired Aptalis just last month for $2.9 billion in cash. Uncertainties about the US healthcare market and fierce competition from generic drug manufacturers are driving the M&A activity as companies try to improve their bargaining position and improve margins.
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Between this deal, the massive Time Warner Cable/Comcast merger, and the possible merger between Sprint and T-Mobile, 2014 is shaping up to be a great year for M&A in general.
Icahn wins big on the deal
Carl Icahn in particular must be happy with the result. Icahn Associates took an 11.4% stake in Forest Laboratories, Inc. (NYSE:FRX) a few years ago, pushing for change until Saunders was appointed CEO. Considering that Saunders also sold Bausch & Lomb to Valeant Pharmaceuticals for $8.7 billion just prior to being named CEO at Forest, this may have been precisely the outcome that Icahn was hoping for. Saunders is expected to stay on for the time being, but his role has not been announced and with his recent track record activist shareholders could be clamoring for him to work his magic at other firms.
Icahn, who has a reputation for being an aggressive activist investor, recently wrote an open letter responding to the creation of the Shareholder-Director Exchange (SDX), an organization that is working to minimize the influence of groups like Icahn Associates. He argues that he has never viewed himself as a short-term investor, and that his goal is to improve corporate governance (something he wants SDX to work with him on) to generate long-term shareholder value. This merger, at least, is an example of when his strategy works out.