By Liz Hoffman
Valeant Pharmaceuticals International Inc. raised the takeover
price for Salix Pharmaceuticals Ltd. by about a billion dollars in
a new deal that knocked out rival bidder Endo International
PLC.
Valeant increased its per-share payment to $173 a share, or
about $11.1 billion in total, up $15 from the $158 price Salix
agreed to take from the drug company in February. The higher,
all-cash price prompted Endo to withdraw its rival cash-and-stock
bid, valued at $172.56 a share Friday.
Endo's bid for Salix, valued at $175 a share, or about $11.2
billion, when it was made on Wednesday, had been seen as taking
longer to close and facing more uncertainty as it required a vote
of Endo's shareholders. No such approval is required from Valeant
shareholders.
Endo said in a news release that it has a "robust deal
pipeline," indicating it may have other potential acquisitions in
mind.
Valeant shares were up 2.5% in late afternoon trading in New
York Monday, at $202.45, after dipping last week on news of the
Endo offer. Salix shares were up 2% at $172.75, and Endo was up
2.7% at $89.65.
Salix makes drugs to treat stomach disorders, a fast-growing
area of specialty pharmaceuticals.
Valeant Chief Executive Michael Pearson--coming off a bruising,
failed attempt to acquire Botox maker Allegan Inc. last year--had
been eager not to let Salix slip away, according to people familiar
with the matter. A serial acquirer, Valeant has grown quickly in
recent years by buying companies with proven drugs, then cutting
costs, rather than depending on risky research in early-stage
products.
Valeant announced late Monday it would sell $1.45 billion in new
shares to fund the deal. Pershing Square Capital Management LP is
buying 3 million shares in the offering worth about $600 million,
according to a person familiar with the matter. That would boost
Pershing Square's stake in Valeant to above 5%.
Valeant got more comfortable with the bump after it sold more
debt than expected last week at low interest rates and also
determined its $500 million in planned cost cuts at the combined
companies looked conservative, executives told investors on a call
Monday, the person said.
As part of Valeant's recut deal, announced Monday, Salix
increased by $100 million, to about $450 million, the breakup fee
it would owe Valeant if it were to walk away from their agreement.
That would have added to the cost for Endo of mounting any new
offer for Salix.
Salix also agreed to shorten, to May 1 from Aug. 20, the date
until which Valeant must keep its offer on the table. If the
offer's conditions--principally, that a majority of Salix
shareholders agree to sell their stock--haven't been satisfied by
April 8, Valeant's offer will drop back to $158 a share.
Valeant first announced its agreement to buy Salix for about $10
billion in February. Endo, a fast-growing, smaller drug maker run
by a former Valeant executive, then swooped in last week with a
rival bid.
Deal-making is at the heart of Valeant's strategy, and it said
it has done more than 100 transactions including joint ventures
since Mr. Pearson took the helm in 2008.
Drug companies have been active deal makers as they seek to cut
costs and gain other advantages amid a number of headwinds in the
industry. Last year, $268 billion in pharmaceutical mergers and
acquisitions were announced globally, more than double the volume
in 2013 and the biggest total since Dealogic began keeping records
in 1995. This year is off to an even faster start, with more than
$65 billion of transactions announced, compared with $39 billion
over the same period in 2014.
Tax considerations are also fueling the activity. A number of
U.S. drug companies have bought foreign rivals and moved their tax
locales to countries with lower corporate rates in deals known as
inversions. As the U.S. moved last year to clamp down on such
transactions, those companies that had already managed to invert,
like Valeant and Endo, intensified their hunt for deals in the
U.S.
Last fall, Salix called off a planned inversion deal of its own
after the U.S. Treasury implemented rules aimed at deterring such
deals. Around the same time, Allergan held takeover talks with
Salix as the Botox maker attempted to fend off a hostile takeover
bid from Valeant. Valeant itself had inverted years earlier and
boasts a tax rate of less than 5%.
After Allergan walked away from Salix-- and agreed to be bought
by another inverted company, Actavis PLC--Salix sought another
buyer. The bidding process ultimately drew five suitors, all based
abroad or soon to be. Endo, which inverted in early 2014, was one
of them, but its bid of $150 a share fell short of Valeant's.
In November, Salix disclosed a backlog of wholesaler inventory
that suggested demand for its top drugs might not be as high as
previously thought. Its CEO later resigned, and the company lowered
its earnings guidance.
Write to 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 Allergan, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0184901025
Access Investor Kit for Salix Pharmaceuticals Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7954351067
Subscribe to WSJ: http://online.wsj.com?mod=djnwires