It looks like 2014 could be a scintillating year for mergers and acquisitions. With interest rates remaining low and balance sheets being stuffed full of cash, it seems as though deal-making could be the highest for a long time in 2014.
The latest major (and this really is major) acquisition in the health care space came just last week with Actavis (NYSE:AGN) agreeing to buy sector peer, Forest Laboratories (NYSE:FRX), for $25 billion. Of course, Actavis isn't paying it all in cash, with $26.04 of the $89.48 per share being paid in cash and the rest being paid for via 0.3306 shares in Actavis.
This isn't the only deal that Actavis has undertaken lately. It also agreed to buy Warner Chilcott, a provider of branded treatments for gastrointestinal and urological conditions. This would seem to be where the "fit" between Actavis and Forest Laboratories lies, with the latter also having a gastrointestinal business, as well as a number of brand-name drugs for neurological conditions.
Indeed, the new company could have a lucrative mixture of branded drugs as well as the stable of generics that Actavis currently owns. This could provide it with a greater degree of stability in future and allow it to benefit from economies of scale on top of the cost-cutting measures that were announced by Forest Laboratories CEO, Brent Saunders, to take place by 2016. As such, the deal appears to make sense for both sets of shareholders and could create a stronger company as a result.
Of course, the news comes only a short while after Forest Laboratories itself agreed to purchase Aptalis, a firm that manufactures treatments for cystic fibrosis and gastrointestinal problems, for $2.9 billion. That deal is said to create an additional $700 million in revenue per year for Forest Laboratories, with shares reacting very positively to the news and making Actavis pay an even higher price for Forest Laboratories.
Elsewhere in the Pharmaceutical sector, Johnson & Johnson (NYSE:JNJ) agreed in January to sell-off its blood-testing unit to private equity firm, Carlyle Group, for just over $4 billion. This is positive news for shareholders in Johnson & Johnson as it forms part of its strategy to divest what it deems to be slower growth divisions as it seeks to stimulate its top-line growth prospects.
In addition, Bristol-Myers Squibb's (NYSE:BMY) sale of its share in the diabetes alliance it had with AstraZeneca (NYSE:AZN) has completed, with the latter paying the former in excess of $2.7 billion for the stake. The deal seems to make sense for both companies, as AstraZeneca is seeking to overcome a highly challenging patent cliff (where many of the patents on its blockbuster drugs are expiring without adequate replacements), while Bristol-Myers Squibb is attempting to reinvent itself by focusing on specialized and more profitable treatment areas.
So, after only two months into 2014, it has already been an extremely busy year for mergers and acquisitions. The Actavis deal to purchase Forest Laboratories is particularly big, but seems to make sense for shareholders. So does Johnson & Johnson's divestment program, as well as the deal struck between AstraZeneca and Bristol-Myers Squibb regarding the diabetes alliance. Therefore, with all of the mentioned health care stocks (and many others) implementing strategy changes this year, it seems likely that 2014 could turn out to be a far busier year than 2013 (and the busiest year for some time) for deal making.
Peter Stephens owns shares of AstraZeneca. The Motley Fool recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.