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

Valeant Pharma (NYSE:VRX)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Valeant Pharma Charts.
Valeant Pharma (NYSE:VRX)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Valeant Pharma Charts.