Actavis

"Deutsche Bank, by contrast, made close to €200 million in fees on the Actavis buy-out in 2007, and got its loan back. Although it did not get all the interest, this led to handsome bonuses for its bankers, but the deal ended up putting the bank at risk of needing some help. This highlights a failing with the system that is sometimes called an agency problem, whereby bonus-hungry bankers take inordinate risks on behalf of their banks which foot the bill when things go wrong. It also leads to a lack of responsibility and accountability when deals become a problem."

"for a company that I bought at a valuation of $20 million in 1999 and sold when it had revenues of almost $2.5 billion 13 years later. I originally put only $4.5 million into a privatisation of a company with revenues of $100 million. I am still a shareholder and now have a stake of just under 2 per cent in a company worth about $60 billion. So Play represents my entrepreneurial side and Actavis my financial engineering side, with mergers and acquisitions always at the fore."

"The similarities between the bet I made on the Russian brewery with my American investors and what I was doing now with Actavis were striking. It was no less than a game of double or quits."

"There are deals that I did in the past that I wouldn’t do now. I wouldn’t attempt to do the deal we tried with Amer Group and I certainly wouldn’t go anywhere near that dreadful Allianz investment. I would still do most of the successful deals, however, particularly the Czech Republic and Bulgarian telecoms deals. I would also still do the Actavis leveraged buy-out. The reason I made money is that other people did not get the risk assessments right – they overemphasised some risks and misunderstood the opportunities of others."

"Let’s do the math, as Americans say. In 2005, Forbes calculated I was worth $1.4 billion, making me Iceland’s first billionaire. By the peak of the boom, midway through 2007, this had increased to $4 billion, with roughly one-third of my wealth in Actavis, another third in Landsbanki, Iceland’s second-biggest bank which was privatised in 2002, and the remainder in other ventures. But by the end of 2009, following the government’s seizure of Landsbanki and the fall in Actavis’s valuation, this had fallen to about $40 million. So if people asked how I was doing, I replied that I still had 1 per cent of my net worth."

"Actavis, a generic pharmaceutical business where I was the largest shareholder, had become a public company with a stock market capitalisation of about $50 million – so small that London investment bankers would barely give me the time of day. But Actavis grew phenomenally both organically and…"

"Actavis, in all its guises, was my biggest, most profitable and most complicated investment. It sums up the way I like to do business. In its early days, it involved putting together an equity consortium in a privatisation in eastern Europe. Then there was a reverse takeover of a listed company, the spin-off of its core business, a hostile cross-border takeover of another listed company, a…"

"In the Actavis takeover, I made a public offer for the company worth €5.3 billion, putting up 20 per cent of the equity and borrowing the rest. This was the largest European private equity deal in 2007. I still find it incredible when I think about it, but I was hardly alone in my hunger for top-of-the-market profit dollars. Indeed, I was inundated with bankers who wanted desperately to be in on the deal. Some were hammering at the door to get in but it was being kept firmly shut by those on the inside. ‘No. We’re not letting any other bank in,’ they told me. ‘Guys,’ I said. ‘You’re lending €4 billion here. Don’t you want to…"

"Actavis continued to grow but went through a lot of change. One of the Bulgarian entrepreneurs left and sold his stake in 2002 and the other departed a year later. But the Pharmaco deals established me in Bulgaria and in the wider banking markets too. In 2001 and 2002, when I was pitching to investment banks in London, we had turnover of just $150 million and they would hardly give us…"

"Later that year, in August, I met Steve again. I had just taken Actavis private in a €5.3 billion deal that Deutsche Bank was rolling €4 billion into. This deal could so easily have plunged Germany’s biggest bank into serious financial difficulties. I had built Actavis into one of the world’s biggest generic pharmaceutical companies in a competitive and consolidating industry. As industry consolidation quickened after 2006, I felt we had to decide quickly whether we were going to become predator or prey. Both could have worked, but we decided that because of the state of the lending markets we were going to become predators, leveraging up Actavis and buying other companies. We bid for a Croatian generics company, Pliva, which ended up being bought by a US company, Barr Pharmaceuticals, and went a long way down the line to try to buy the generics division of Germany’s Merck. Bankers fell over themselves to provide debt and convince us to bid and, although we ended up backing away from the price being asked, we had credit lines of €3.4 billion–€4 billion committed on a potential deal. This opened my eyes to the amounts that banks were willing to lend on such deals, so I decided to use that arsenal of debt to buy the 60 per cent of Actavis that I did not already own."

"It was a busy time for me: within a month of bidding for Landsbanki, I also engineered the Pharmaco–Delta pharmaceuticals merger, creating the company that would later become Actavis. Now, at the age of 35, I had most of my assets in the country, controlling with my father two of its biggest companies."

"One of my major mistakes was that I was in too much of a hurry to try other ventures and didn’t pay enough attention to Iceland’s problems. I was trying to lay as many bets as I could while the plentiful supply of surplus capital lasted. But I had lost focus and was involved in too many things. I sold Bulgarian telecoms group BTC but then, before I had finished a project with Finnish telecoms firm Elisa, I was engrossed in the Actavis leveraged buy-out. Before completing my ill-fated investment in Amer Sports, I made a derivative bet on Allianz, with an even worse outcome. And I also negotiated a complex deal to come to the rescue of the beleaguered Polish owners of QXL, an early online auction competitor to eBay that had run into trouble. The company then recovered, with its shares rising a staggering 1,260 per cent in 2005, making it the year’s best performing stock on the London Stock Exchange. We then sold it to Naspers, a subsidiary of a South African media group. The problem was that I couldn’t handle the pitch or the speed because there were so many things going on. My focus was always on doing the next deal, restructuring and rejigging something I already had, and not so much on the oversight, which is an important check and balance. I was not good at that. I’m always more interested in creating something new. I had lost my ability to focus, something that had served me so well in Russia, and which is essential for an investor looking after his money."

"I refuse to be classed alongside such operators. I have lived abroad for 26 years, more than half my life. I don’t have Icelandic funds to invest abroad. I earned my capital abroad and made the mistake of ploughing much of it back into Iceland. Others started businesses in Iceland and leveraged their local assets to acquire businesses abroad. I did things the other way around, bringing money into the country. When I sold my companies in Russia, Bulgaria and the Czech Republic, I was paid in cash, not in paper, and that cash paid for Actavis and was pumped into Iceland’s financial system. I did not sell a single share in Landsbanki, Actavis or Straumur, the investment bank of which I was chairman."

"People have said to me that the deal could have sunk Deutsche Bank. It was my deal – and I put my hand up clearly for it – but the multiples that it was pitched at now look nothing short of staggering. We put in 12 times leverage and 5 times equity, with the result that Europe’s second-largest generic drugmaker was valued at 17 times its underlying EBITDA. Why did we value Actavis so highly? Well, it was the height of the stock market bubble and I was full of hubristic ambition. The company was growing strongly and I thought the buy-out was a great deal. Actavis was going from strength to strength so I would take it private, sell it in two to three years’ time and make three times my investment. I thought I would end up making more than €2 billion on the deal – my best return ever."

"Analysts came in and ascribed to Actavis a value in a freefall insolvency of just €1.4 billion, leaving a gap of €4.4 billion on what Deutsche Bank was owed. That would have crystallised a loss of more than €4 billion for the bank, so it had a serious problem. We started negotiating and agreed to restructure. Deutsche Bank did not revalue the loan until later, when the dust from the financial storm had settled. The whole thing was somewhat opaque and the numbers were well hidden in the annual report and only seen by those who knew what to look for. As for my own losses, when I took Actavis private my equity in the deal was €1 billion, after which I put in the additional €150 million I borrowed. It all went. My equity in Actavis became worthless. People say: ‘Was that real equity?’ But the point is that we had interest from other companies that were willing to pay that price at the time of Actavis being taken private. I could have walked away with over €1 billion if I had decided to be a seller, like other Actavis shareholders who sold out for cash at the time. Instead, I stayed in the company, making an earn-out deal with Deutsche Bank under which I was able to earn fresh, new equity."

"I needed to put more money into the business, by far one of the biggest companies in Iceland, so that it wouldn’t be taken over by Deutsche Bank. We had assets enough, and were working on selling them, but for the time being we had liquidity problems, so I borrowed €150 million from Landsbanki in March 2008 to rescue Actavis and fund salaries. This is what I was most criticised for in Iceland after the crash. ‘How could you borrow this in September 2008?’ my detractors cried. But I had started the process in March, borrowing in monthly instalments, with the last and largest payment coming in September. I gave a personal guarantee against the borrowings and, most importantly, that guarantee involved me pledging my holdings in Play, the Polish telecoms company, which was my most valuable and debt-free asset. Even so, the loan proved insufficient to get Actavis back on track and we were still busy scuttling around when the financial crash struck."

"I was in New York for a board meeting and I met up with Siggi in the Waldorf Astoria Hotel to flush out what Watson’s ideas were. Joining us in the meeting was Watson’s chief executive Paul Bisaro. As they began to describe their vision for the company and the sector, I couldn’t help but smile at the irony of it. Paul and I had crossed swords before in the very public battle for the Croatian pharma company Pliva, where we had each fought with every trick we knew. He had won and I had lost. That was water under the bridge, and I explained the situation for each of the stakeholders in Actavis. Deutsche Bank was looking for no risk at all, while my Novator vehicle was willing to look at the big picture in terms of future value creation. Watson’s idea was to pay with cash and stock, and clearly that would not work for Deutsche, even if it could work for us. I needed to find a way to make this work for both the bank and Novator. As they say, the devil is in the detail."

"But of course the moment I was seen to be back in the game, the calls began again. For me, it happened suddenly, almost as if it was on the flip of a coin. In late 2013, Jamie Dimon, chief executive of JP Morgan, rang me and said that he was personally at my disposal if I needed any help with a $1 billion bond issue being undertaken by Play, the Polish telecoms operator that I had set up back in 2005. The bank was very keen to handle it, and we were glad to oblige. Then I got a call saying the same thing from Brian Moynihan, chief executive of Bank of America. JP Morgan and Merrill Lynch ended up getting the mandate to act for Play on the bond issue. And as part of the process, which other global bank should be back at my office offering to lend us $1 billion but Deutsche Bank? That was ironic. Some of the bankers we dealt with this time were the same ones who had put all that debt into Actavis, very nearly losing a good deal of it. I rang them to say that they weren’t going to get the bond issue mandate, and then got a text message back saying that they were prepared to underwrite the whole issue. I couldn’t believe they were prepared to do the same thing that ended up with us both in trouble the last time we did a deal together."

"In Frankfurt, I agreed with Deutsche Bank that I would continue to explore the Watson opportunity and try to crystallise it into an offer that we could work with, based on our different motivations. The weeks rolled on and I sensed that the Americans at Watson were also trying to be opportunistic and buy Actavis on the cheap through the bank. I knew, however, that Deutsche Bank had a clear pain threshold, from which it could not budge. Its absolute minimum was €4 billion in cash – more than the Americans were offering. I needed to make sure that this would not turn into a game with no outcome. This was truly a unique chance for us all."

"My major business investment was about to get a second chance too. When at the airport about to depart on honeymoon to the Maldives, I was called by a former colleague, Sigurdur Oli Olafsson, who had previously been CEO of Actavis. Siggi Oli told me that his new company, US-listed Watson Pharmaceuticals, was interested in buying or merging with Actavis. He wanted to know if there was any way to achieve this in a low-key fashion, as the company was not interested in going into an auction. He said that Watson wanted to act soon, but understood from Deutsche Bank that a sale of Actavis was off the table for two years. He and his colleagues believed that a lot was going to happen in the world of generic pharmaceuticals in the following 24 months and the group had to move fast to be an acquirer instead of becoming a target."

"On 26 September 2011, at a meeting with the Watson executives in my office, I extrapolated the numbers and hypothesised about what the stock price of a Watson–Actavis combination could be over one-, two- and three-year frameworks. It was a persuasive argument and the main players all now agree that this was the point at which we all set ourselves on a mission to finish it one way or another. As it turned out, I had other matters to think about. The meeting was abruptly cut short when Kristin called to say she was going into labour prematurely and needed help immediately. I ran straight out of the meeting, shouting at my PA to call an ambulance to my home, and drove myself home like a madman, fearful for Kristin and our unborn child. Mercifully, a few hours later Kristin successfully gave birth to our little girl in an emergency procedure. I, however, still had another deal to deliver."

"Actavis got over its 2008 management and operational problems and is now a good company with an excellent research and development pipeline. Its recent success has been driven by mergers and acquisitions. First, Actavis was taken over by America’s Watson Pharmaceuticals for €4.25 billion in 2012. The following year, the combined company merged with Ireland’s Warner Chilcott in a deal valued at $8.5 billion. In July 2014 it completed the acquisition of Forest Laboratories for $25 billion. Then Actavis bought Allergan, the manufacturer of Botox, for $70.5 billion, assuming the acquired company’s name. A $160 billion merger with Pfizer was abandoned and Allergan later sold its generic drugs business to Teva Pharmaceuticals for $40.5 billion before being acquired by America’s AbbVie for $63 billion in 2019. Not bad for a company that I bought at a valuation of $20 million in 1999. I originally put only $4.5 million into its privatisation when it had revenues of $100 million. By 2016, when I finalised the sale of my last remaining stake, I had made $1.1 billion from the company. But even before this, after five years in which the financial markets were effectively closed to me, the combined growth of my investments in Play and Actavis had by February 2014 made me – on paper, at least – a billionaire again."

"The other main reason for the sudden revival in my fortunes related to Actavis, which since 2008 had been my biggest piece of unfinished business. For much of that time, it struggled to be worth anything near the €5.3 billion that we had paid for it just before everything went wrong in the financial markets. Write-downs were taken and the company went sideways, but the logic behind the deal remained intact. In a world where the truly big drug discoveries are thought to have been made, generic pharmaceutical companies have the attraction of a much lower cost base, with plenty of off-patent drugs to produce. Generics were one of the last unconsolidated parts of the pharmaceutical landscape and when the mergers and acquisitions market started to recover in 2013, generic pharmaceuticals was one of the first sectors to benefit."

"It was a great moment for me, and I honestly felt that I had hit upon a way to look upon the uncertainties of the time in a positive way, and hopefully I managed to inspire a few young people in the process. Later that day I went with Kristin to a late lunch to celebrate the event, and we were sitting in a nice hotel restaurant on a fine spring day in Manhattan when I got a call from my office in London. My two colleagues were on speakerphone and proceeded to summarise for me the meetings that had taken place with Deutsche Bank in London that day, which were the culmination of very lengthy and stormy confrontations over the previous eight weeks. It was very bad news, and I felt as though I had been doused with a bucket of iced water. Deutsche Bank, my biggest creditor as a result of its loans to Actavis, had finally spelled out its terms. They were completely unacceptable. The scale of my Actavis problem finally dawned on me."

"Deutsche Bank, which had a lot of money at stake, insisted that I do two things. First, I had to put more money into Actavis. This was bad news, but I used all my remaining funds and injected €150 million into the company as fresh equity on top of the roughly €1 billion that I had put in initially. Second, Deutsche Bank insisted that I look for a buyer for Actavis, which I duly did with the help of Merrill Lynch Bank of America. Needless to say, trying to sell the company in this environment and with these internal issues proved futile. The indicative offers we received reflected the parlous state of the company and were very disappointing. We abandoned the sale process and set about coming up with a rescue plan. My Novator investment company presented a six-point plan, but getting Deutsche Bank to engage in discussing this and making a decision proved difficult."

"For example, Actavis made a hostile bid for Pliva, a large international pharmaceuticals company based in Croatia, in 2006. The chief executive didn’t want our takeover and got a US drugs group, Barr Pharmaceuticals, to counter-bid for it as a ‘white knight’. Soon it became clear that the public relations strategy was to focus on my time in Russia, with Barr hiring Kroll, an investigations agency, to help it in a PR battle."

"What was it like to add $2 billion to my personal wealth in the space of just two years? It certainly wasn’t ‘easy come, easy go’, although that is how it might look now, but it was definitely rapid. I made my first $100 million in 2002, from the Bravo brewery sale to Heineken. In those years Pharmaco, later Actavis, a generic pharmaceutical business where I was the largest shareholder, had become a public company with a stock market capitalisation of about $50 million – so small that London investment bankers would barely give me the time of day. But Actavis grew phenomenally both organically and through mergers and acquisitions, and by 2008 it was valued at €5.3 billion ($7.3 billion dollars at the exchange rate of the time) and was Iceland’s biggest industrial company, second in size only to the banks on the nation’s stock exchange. Actavis, in all its guises, was my biggest, most profitable and most complicated investment. It sums up the way I like to do business. In its early days, it involved putting together an equity consortium in a privatisation in eastern Europe. Then there was a reverse takeover of a listed company, the spin-off of its core business, a hostile cross-border takeover of another listed company, a public-to-private leveraged buy-out, financial restructuring and finally a sale to a listed company."

"Let’s do the math, as Americans say. In 2005, *Forbes* calculated I was worth $1.4 billion, making me Iceland’s first billionaire. By the peak of the boom, midway through 2007, this had increased to $4 billion, with roughly one third of my wealth in Actavis, another third in Landsbanki, Iceland’s second-biggest bank which was privatised in 2002, and the remainder in other ventures. But by the end of 2009, following the government’s seizure of Landsbanki and the fall in Actavis’s valuation, this had fallen to about $40 million. So if people asked how I was doing, I replied that I still had 1 per cent of my net worth."

"We used our majority stake and the support of other shareholders to merge Delta and Pharmaco in 2002; in 2004 the merged company changed its name to Actavis. I felt a great sense of achievement in having created one of the largest companies in Iceland, with a research and development arm that complemented its manufacturing operations in, and cash flow from, eastern Europe. Actavis continued to grow but went through a lot of change. One of the Bulgarian entrepreneurs left and sold his stake in 2002 and the other departed a year later. But the Pharmaco deals established me in Bulgaria and in the wider banking markets too. In 2001 and 2002, when I was pitching to investment banks in London, we had turnover of just $150 million and they would hardly give us the time of day. But our growth, both by acquisition and organic, increased that figure fivefold."