Generic drugmaker Actavis said on Tuesday it would buy Forest Laboratories for about $25 billion in cash and stock, expanding its portfolio of specialty pharmaceuticals for neurological and other disorders.
The deal delivers a major payday to activist investor Carl Icahn, the second-largest shareholder at Forest Labs, who waged two proxy battles and threatened a third to change its leadership and strategy.
Actavis said it would pay the equivalent of $89.48 per share, representing a premium of 25 percent to Forest's closing price on Friday. The offer comprises $26.04 in cash and 0.3306 Actavis share for every Forest share.
(Read more: Comcast-Time Warner deal shows M&A 'euphoria': Pro)
Actavis shares rose nearly 8 percent in premarket trading on Tuesday as investors backed the latest step in the company's strategy of acquiring specialty drugmakers to boost profit margins and sales. (Click here for the latest quote.) Shares of Forest jumped nearly 30 percent. (Click here for the latest quote.)
"This is a huge win for all shareholders of Forest Labs and yet another validation of the activist investment philosophy in general," Icahn, who holds an 11.32 percent stake in Forest, said in a statement.
Icahn helped bring about a management change at the company last year, when long-time CEO Howard Solomon retired and was replaced by former Bausch & Lomb CEO Brenton Saunders. In January, the company delivered quarterly financial results well ahead of analysts' expectations.
Saunders said that Forest had not run a full sales process for the company but that the combination came together after he and Actavis CEO Paul Bisaro met.
"It's something that we did very carefully, but very quickly," Saunders said during a conference call to discuss the deal on Tuesday.
(Read more: Apple M&A exec met with Musk: Report)
Actavis expects the deal to add to its profits in the double-digit percentages in 2015 and 2016, including about $1 billion in tax and operating savings.
The addition of Forest will boost specialty drugs to represent about 50 percent of combined company revenue—estimated at about $15 billion. North American specialty pharmaceuticals comprise about 30 percent of Actavis' standalone revenue now, the company said.
Forest brings a diverse portfolio of treatments for disorders of the central nervous system, digestive tract issues and women's health.
It faces patent expirations on several of its biggest drugs, including Alzheimer's treatment Namenda, but also has an advanced pipeline of new experimental therapies for infectious disease, lung disorders and schizophrenia.
BMO Capital Markets analyst David Maris said the deal was consistent with Actavis' goal of moving away from its reliance on generic drug sales and into higher-margin branded therapies. But he cautioned that the company may have trouble managing Forest's sprawling sales force.
(Read more: Carl Icahn buys $500million more in Apple shares)
"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," Maris wrote in a note to clients. "We acknowledge the deal frenzy and earnings accretion deal environment, but are not convinced that such a deal makes strategic sense."