Mergers & Acquisitions

U .S. generic drug firm Barr Pharmaceuticals and Iceland's Actavis are fighting for control of Croatian drug maker Pliva.

Barr appeared to have bested Actavis early last week, when Pliva's board endorsed its $2.2 billion bid. But in true Viking fashion, Actavis is ready for a battle: The Icelandic firm countered with a $2.3 billion offer. This is the second time Actavis has raised the price from its original unsolicited bid of $1.6 billion, made in March.

Pliva would significantly expand the global reach of Barr, which currently lacks a European presence, while also providing a low-cost manufacturing base in Central and Eastern Europe. For Actavis, the purchase comes as part of a larger push to become a leading player in the global generics market.

Consolidation has swept through the competitive generic drugs industry, where size and global reach translate into purchasing power and marketing synergies and are critical to survival.

Although analysts understand generic drug firms' desire to grow, Pliva is not considered an ideal target. Pliva for years has relied heavily on revenue from the antibiotic Zithromax, which it licensed to Pfizer. But the U.S. patent on the drug expired in November, and Pliva is not expected to have enough in its portfolio to counter the sales loss.

"My concern is that they're buying a business that needs some pretty firm management steps to bring it out of the effective decline it has been in for the past few years," says Nomura Code Securities Director Frances Cloud. Pliva's business is "going backward, not forward," a situation masked by the income stream from Zithromax, she adds.