Please answer the 6 discussion questions in APA format with minimum of seven hundred words.

END OF CHAPTER CASE STUDY: IRELANDFBASED DRUG MAKER ACTAVIS BUYS U.S. PHARMACEUTICALS FIRM FOREST LABS Case Study Objectives: To Illustrate - Alternative mntives for Whirl-def acquisitions - Hnw taxes impact Wile-r deals and capital flaws - How activist irwestm's can impact mrpm-ate decisixms. Reecting the eacalang meats 0f develnping blmkbuster drugs (i.e., thee-3e with the potential tndelivermarethan blioninannualrevenueialthelnssnfpatentpmmcmmmany substantial revenue producing medications, the pharmaceutical industry has been undergoing a wave ofconsolidalion for more than a decade. The takeover strategy in many instances appeared to be largely formulaic acquire rivals, slash costs, and minimize taxes. lWhile Valeant Pharmaceuticals and Endo Health Solutions have employed this strategy effec tively, drug maker Actavis is perhaps the most succeful, tripling its market value during the last 3 years. Aclavis is a global, integrated specialty pharmaceutical company focused on devel oping, manufacturing, and distributing generic and branded products in more than 60 ccmntries. Structured as a holding company, its global headquarters is located in Dublin, Ireland. The rm's US administrative headquarters is in Parsippany, N]. Actavis historically has focused on generic drugs, but in recent years it has expanded through acquisition into branded drugs. Actavis on February 18, 2014, announced that it had reached an agreement to buy Forest laboratories for $25 billion in cash and stock to create a pharmaceuticals rm with substantial exposure to branded and generic drugs. Forest labs is a fully integrated specialty pharmaceuti cal rm focused on theUS market, with a portfolio ofbranded products. The combined revenues of the two specialty pharmaceutical companies are expected to be more than $15 billion in $15. The new company announced that it would be increasing its annual budget for pharmaceutical research and development to more than $1 billion. Strategically, Forest Iabs represented an opportunity for Actavis to diversify into branded drugs and for Forest labs to penetrate foreign markets not currently survived. Forest labs also has an impressive number of drugs in the pipeline- In 2012, USbased Watson Pharmaceuticals bought Actavis, then headquartered in Switzerland, for nearly $6 billion and adopted its name. In 2013, the rm bought Irishbased Warner Chilcott for about $5 billion expanding its presence in specialty pharmaceuticals and moved its headquarters to Ireland to take advantage of the country's favorable corporate tax environment. The takeover of Forest Iabs needed an assist from famed activist investor Carl Icahn. Icahn has a track record of investing in drug makers and proting from their turnarounds or sales to larger companies. His previous investments included ImClone Systems which was sold to Eli Ily&C0.inztleor$63billionandinGenzymeCm-p whichwassoldtoSanoinmn for $19.4 billion. In 2012, Icahn investments that were later sold included Amylin Pharmaceuticals which was acquired by BristolMyers Squibb for $5.1 billion. Icahn, who owns 11% of Forest's stock through his rm Icahn Enterprises, played a key role inmakingthisdealhappenbypmddingForestIabstoinstallanewCEOinlelSwhowas more amenable to selling the firm. To avoid a third proxy ght in as many years, Forest added an Icahn representative to its board in 2013- increasing his inuence on board decisions. Under the terms of the deal, Forest shareholders will receive $26.01- in cash and 0.33% of a share of Actavis, equivalent to $89.48 per share. This represents a premium of 25% from Forest [ab's closing price the prior day. Forest shareholders will own 35% of the combined rms. Forest[absagreedtopayaterminationfeeof$375millionifitbacksoutoftheagreementin favor of a competing takeover proposal or if the rm's shareholders do not approve the deal. The acquisitive Actavis has completed seven deals since January 20'13. Like those deals, the rm expects to realize substantial costs mvings. However, in this case, the takeover of Forest [abs will be accretive to earnings immediately following closing. This is relatively unusual as cost mvings in most deals in the rst year are negated by a combination of severance expenses and other integrationrelated costs. Aclavis announced that it expects to realize a combination of operatingandtaxsavingsof$l billionannuallytoberealieedbeginningintherslfullyeart operation of the combined firms. Assuming a discount rate of 12%, the present value of these savings in perpetuity is $3.3 billion ($1 billionfJZ}, well in excess of the $5 billion acquisition premium paid for Forest Iabs. Not surprisingly, investors greeted news of the merger favorably. Shares ofForestroseB'itandthoseofActaviswereupIZ'iB. The takeover of Warner Chilcott in 2&12 allowed Aclavis to complete a \"tax inversion" in which it relocated its headquarters to Ireland to escape the higher American statutory corporate tax rate. A big advantage of a \"tax inversion\" besides the lower statutory tax rate is that acquisi tions become more affordable. lCash held overseas because of the more favorable tax rates can be used to pay for a deal and the earnings from the acquired rm are also taxed at Aclavis's lower tax rate. Tax inversions are not viewed as tax evasion strategies by the US taxing authorities as long astheycanbejustiedbygrxxibusiness reasonssuchas getting nearertoarm'scusto mers or suppliers. Tax evasion is the avoidance of taxes through illegal means such as misrepre- senting income on a tax return. The maximum corporate tax rate in Ireland is 12.5% compared to 35% in the United States. FmestIabseai-rlingswhichhadbeenlaxed at the higherIJ'E-'urate will betaxed atthelowerlrish rate currently paid by Aclavis. Annual tax savings are expected to amount to at least $100 mil lion. This gave Aclavis a huge advantage in bidding for Forest Iabs over other potential suitors by enabling it to offer a larger premium. From a legal perspective, an inversion is simply the process by which a corporate entity, established in another country, \"buys" an established American company. The transaction takes place when the overseas entity purchases either the shares or assets of a domestic corporation. The shareholders of the domestic company typically becmne shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United State; to another country. An inversion typically does not change the operational structure or location of a company. In most cases, an inversion simply means the addition of a small ofce in the company's new foreign \"home." Therefore, a reincorporation rarely, ifever, leads to the loss ofAme-rican jobs. However, it does lead to a loss of tax revenue. Discussion Questions '1. Using thecommon motivesforaossborderdeals discuimedinthischaptenspemlateas to the reasons Actavis acquired Forest tabs. 1 What alternatives to acquisition could Actavis have pursued? Spectate as to why a takeover was the preferred option? 3. Speculate as to how Actavis's takeover of Forest labs may have created shareholder value? 4. Do you believe m'ns should be allowed to engage in tax inversions? 5. Why is Actavis mganized as a holding company in Ireland? ti. Speculate as to why invesmrs for both rms responded so favorably when news of the deal was announced? Solutions to these questions srefound in the Unline- Instructor's Ida-nun! available to instructors using this bulk