David Welch and David Wainer New York and Tel Aviv

Actavis, the second-largest maker of generic drugs by market value, yesterday agreed to buy Forest Laboratories for about $25 billion (R271bn) to increase its focus on branded medicines.

Forest stockholders would receive cash and stock valued at $89.48 a share, the companies said in a statement yesterday. That is 25 percent above the closing price on Friday.

The deal is a win for billionaire investor Carl Icahn, who gained a board seat at Forest in 2012 and is the second-largest shareholder.

New York-based Forest had a market value of $19.3bn when trading closed on Friday.

Actavis has been the most active buyer of drug companies over the past three years, making $14.4bn of purchases.

The company, based in Dublin and run from New Jersey, depended on mergers and acquisitions (M&As) to sustain earnings growth, since developing new drugs through research and development (R&D) was so costly, said Ori Hershkovitz, a partner at Sphera Funds Management, a Tel Aviv-based hedge fund that invests in pharmaceutical firms.

“They have promised the market they would do a large amount of deals to keep the accretion alive,” he said. “If you can’t do a large amount of R&D, there’s only one way to grow and that’s through M&As.”

Actavis rose 0.1 percent to $191.88 on Friday in New York, giving it a market value of $33.4bn. Forest rose 1.5 percent.

With a purchase of Forest, Actavis will add the Alzheimer’s drug Namenda and blood-pressure pill Bystolic to its product line-up. The acquisition would add to earnings immediately, Actavis said.

The purchase fits with Actavis’s desire to expand in branded pharmaceuticals and become less focused on generics, and investors probably will look favourably on it given the “deal frenzy environment,” said David Maris, an analyst at BMO Capital Markets in New York.

Still, he was not convinced the purchase made strategic sense because Actavis’s financial outlook was already solid and overseeing the integration would be difficult, Maris said.

“We don’t want to be the grown-ups at the party, but we wonder why Actavis would seek to complete such a large deal when near- and intermediate-term earnings are, in our view, already in a good position,” he wrote in a report before the announcement.

Actavis was formerly known as Watson Pharmaceuticals. It acquired Actavis in 2012 and took on the Swiss company’s name.

Forest Laboratories chief executive Brent Saunders would join the Actavis board, the companies said.

Paul Bisaro, Actavis’s chairman and chief executive, will lead the combined operation. Saunders “has agreed to work with me following the close to build a world-class company,” Bisaro said. – Bloomberg