By Jonathan D. Rockoff and Liz Hoffman
Valeant Pharmaceuticals International Inc. said Sunday it would
buy Salix Pharmaceuticals Ltd. for about $10 billion, a return to
its big deal-making ways after a failed bid for Botox maker
Allergan Inc. last year.
Quebec-based Valeant said it would pay $158 a share in cash for
Salix. That is just above Friday's closing price of $157.85 for the
Raleigh, N.C., drug company's shares, which had risen recently on
reports of a potential deal.
The deal will take Valeant into a growing, multibillion-dollar
market for drugs treating stomach disorders like traveler's
diarrhea. Valeant estimates the overall U.S. market for
stomach-disorder treatments is $5 billion and growing 5% a year,
while Salix's sales are growing even faster than that.
Yet the deal will come at a cost for Valeant, roughly doubling
its debt to $31 billion, according to Chief Executive Michael
Pearson.
Also, Salix is a tarnished asset. In November, Salix disclosed a
revision to its wholesale-inventory levels that suggested demand
for its drugs might not be as high as previously thought. In recent
months, the company's chief financial officer and chief executive
have left.
Valeant expects to lose out on about $500 million in sales this
year as distributors reduce drug inventory levels to adjust for the
accounting issues, Mr. Pearson said.
Valeant sells eye and skin drugs. It had signaled in recent
months that it would focus on growing its own businesses, after the
company had failed to win Allergan. The Botox maker, which was
bought by Actavis PLC for $66 billion, criticized Valeant as a deal
machine.
Mr. Pearson said Valeant's fourth-quarter results, released
Sunday, showed that the company was growing its own business
substantially. Valeant reported total revenue of $8.3 billion last
year, up 43% over the prior year.
Valeant will report the results from recent acquisitions like
Salix separately to show how the underlying business is doing, Mr.
Pearson said. He said Valeant would "continue to focus on the small
and midsize deals."
In just in the past few weeks Valeant moved to buy
prostate-cancer treatment Provenge and other assets from bankrupt
Dendron Corp. for $495 million.
But Salix was too good to pass up, Mr. Pearson said.
He said Salix was especially attractive because its 300 sales
representatives are well-respected by physicians and drugs are
getting reimbursed. In addition, he said, Valeant reached a deal
for Salix at an "attractive price" because the drug-inventory
issues had scared away some suitors.
"This opportunity came up," he said. "And we are very
opportunistic."
Valeant expects the transaction to close in the second quarter
and to begin adding to company earnings this year. The company
expects more than $500 million in cost savings from both companies
within six months.
The deal furnishes certain tax benefits for Salix's business, as
well. Salix paid 32.6% of its profits in taxes in 2013, versus less
than 5% for Valeant, which has lowered its tax rate since its 2010
acquisition of Canada-based Biovail Corp. allowed it to avoid
paying U.S. taxes on certain revenue.
Salix's bankers at Centerview Partners began reaching out to
interested bidders late last year, according to people familiar
with the matter. Five companies--Valeant, Shire PLC, Endo
International PLC, Mylan Inc. and Japanese drug maker Takeda
Pharmaceutical Co.--expressed interest, one of the people said.
Officials at Endo, Takeda, Mylan and Shire didn't immediately
respond to requests for comment.
Discussions with Valeant were never exclusive, and the process
remained competitive until late last week, that person said.
Valeant's bid, which is to be financed with bonds and loans from
Deutsche Bank AG and others, was the highest by several dollars per
share, the person said.
The deal will be structured as a tender offer, with Valeant
purchasing shares directly from Salix investors. Such deals
typically move faster than mergers that require a shareholder vote,
which can take months.
Salix's top-selling product, an antibiotic called Xifaxan for
traveler's diarrhea, is up for Food and Drug Administration
approval for treatment of diarrhea caused by irritable bowel
syndrome. The expanded use could add $1 billion in yearly sales,
Sterne Agee's Shibani Malhotra estimates.
But it could face competition from an Actavis drug also up for
approval, though patients could take both drugs at the same time.
After lacking treatments for years, the stomach-disorder market has
been heating up, with AstraZeneca PLC and Shire also major
players.
Last year, Salix won approval for three drugs. The company,
which was scheduled to report its 2014 earnings on March 2, said it
had about $1.1 billion in total net product revenue during the
first nine months of last year.
Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Liz
Hoffman at liz.hoffman@wsj.com
Access Investor Kit for Valeant Pharmaceuticals International,
Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CA91911K1021
Access Investor Kit for Takeda Pharmaceutical Co., Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=JP3463000004
Access Investor Kit for Allergan, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0184901025
Access Investor Kit for Mylan, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6285301072
Access Investor Kit for Salix Pharmaceuticals Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7954351067
Access Investor Kit for Takeda Pharmaceutical Co., Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8740602052
Subscribe to WSJ: http://online.wsj.com?mod=djnwires