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Deals of the Year 2014: Actavis Realizes Bigger Pharma Ambitions

For CEO Brenton Saunders, the $66 billion friendly takeover of Allergan is just the latest in a string of health care mergers.

When Actavis agreed to acquire fellow drugmaker Allergan on November 17 for $65.7 billion, it completed its swift transformation into a global top ten pharmaceuticals player with a bevy of name brands. Among them: Botox, the jewel in Allergan’s portfolio. The friendly takeover by Actavis, which is based in the northern New Jersey town of Parsippany–Troy Hills, is the latest in a wave of tie-ups and cross-border tax deals that are reshaping the pharma industry.

Actavis has come a long way since late 2012, when it took its current name by purchasing a Swiss rival. Before that the U.S. company, formerly known as Watson Pharmaceuticals, was a top five manufacturer of generic drugs, but “it wasn’t viewed as anything special,” says Tim Chiang, a senior analyst who covers the pharmaceuticals sector at CRT Capital Group in Stamford, Connecticut. Three more mergers later Brenton Saunders, the recently installed CEO of Actavis, presided over the No. 3 U.S. health care deal of all time, according to data provider S&P Capital IQ.

Irvine, California–based Allergan had been the target of a lengthy hostile takeover bid by Canada’s Valeant Pharmaceuticals International, supported by activist investor William Ackman. With Allergan CEO David Pyott loath to accept the deal, Actavis squeezed out Valeant by offering $219 a share — a $10.55 premium even after Allergan stock rose 5.3 percent on November 17, to $209.20. Valeant CEO J. Michael Pearson said he wouldn’t raise his previous high offer of $200 a share.

To fend off Valeant, Allergan had been quietly looking for a merger partner. The company spent months talking with Raleigh, North Carolina–based Salix Pharmaceuticals, but that effort fell through after a Salix accounting revision exposed lackluster sales. Actavis was another potential partner, with any deal to close before Allergan’s December shareholders’ meeting. “David [Pyott] and I were talking late this summer, and I mentioned that if he was looking for a partner, we at Actavis had plenty of overlap. He later got in touch,” says Actavis CEO Saunders.

The combined business is expected to post $23 billion in revenue for 2015, with cost savings of $1.8 billion. Advising Actavis on the deal, which still needs shareholder consent and antitrust approval in the U.S. and the European Union, was JPMorgan Chase & Co., which is due to earn an estimated $73 million; Bank of America Merrill Lynch, Credit Suisse Group and Goldman Sachs Group represented Allergan, will share $119 million.

For deal enthusiast Saunders, 43, this was the latest in a $99 billion string of acquisitions under his watch. He came to Actavis in February 2014 via the $25 billion acquisition of New York–based drugmaker Forest Laboratories, where he had just been appointed CEO. According to CRT Capital’s Chiang, Saunders got the job with a firm push from Ackman rival Carl Icahn, who had made Forest the target of proxy battles since becoming a major shareholder in 2009. The merger saw Saunders take charge of Actavis from Paul Bisaro, who was named executive chairman. Before joining Forest, Saunders was CEO of Bausch & Lomb; in August 2013 he pulled off the $8.6 billion sale of the eye care giant, working with its owner, private equity firm Warburg Pincus, to none other than Valeant.

Shortly before Saunders took the helm at Actavis, the company had snapped up Warner Chilcott — another previous Valeant target — in a $9.2 billion inversion that gained it an Irish tax domicile. That status paid off in further tax discounts for the Forest acquisition. Actavis saw Forest as an opportunity to acquire name brands that bigger players were circling, such as antidepressant Celexa. “We had to fight off several interlopers in the deal,” says Ashish Contractor, a managing director at New York boutique investment bank Greenhill & Co. who advised Actavis on the merger. Wary of retaining commercial banks lest news of its negotiations leak, the company quietly closed with Forest on Presidents’ Day.

Top 10 Deals of 2014

  1. Kinder Morgan Goes All In
  2. Comcast Faces Screen Test
  3. Actavis Realizes Bigger Pharma Ambitions
  4. Medtronic, Covidien Home In on Tie Up
  5. Lafarge and Holcim Pour It On
  6. Alibaba Sets IPO Record with NYSE Debut
  7. Facebook's Data-Driven Takeover of WhatsApp
  8. Altice Turns Paper Profit
  9. Eurobank Ergasias Spearheads a Greek Banking Revival
  10. Bond Issue Boosts U.K.'s Renminbi Trading Cred

Follow Anne Szustek on Twitter at @the59thStBridge.

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