Valeant to buy Salix in $10.1 billion pharma deal

Feb 23, 2015, 3:02 PM EST
Michael 'Mike' Pearson, chairman and chief executive officer of Valeant Pharmaceuticals International Inc., pauses during a Bloomberg Television interview in New York, U.S., on Wednesday, April 23, 2014. With his $45.7 billion bid for Allergan Inc., Pearson is pulling the credit rating of Canada's most indebted junk bond issuer closer to investment grade while attempting the biggest takeover in the country's history.
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Canadaian pharmaceutical company Valeant announced on Sunday that it will buy gastrointestinal drugmaker Salix for $10.1 billion. The Wall Street Journal writes that this is a return to Valeant’s 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.

The merger is expected to yield more than $500 million in annual cost savings within six months, the release said, according to Reuters. The transaction is expected to close in the second quarter of 2015, and is subject to customary closing conditions and regulatory approval. The failure to acquire Botox-maker Allergan led Valeant to reassess its history of growth by acquisition and to target a higher stock price and debt-reduction in the next two to three quarters, people familiar with the matter told Reuters in December.

Valeant came under fire during the protracted battle for Allergan, writes the Globe and Mail, with allegations from its target and other critics that it is nothing more than a serial acquirer that slashes R&D and staff once it has scooped up a company, has little organic growth and produces opaque financial results. Valeant – which has a significant presence in Bridgewater, N.J. – has also been criticized for using its international structure to take advantage of lower tax rates in Canada. “There were a lot of allegations made about our company that just aren’t true, so we waited to show a number of clean quarters” including a fourth quarter that will boast 16 per cent organic growth, Valeant chairman and chief executive officer Michael Pearson said in an interview Sunday.

The Salix deal represents further diversification for Valeant, this time into what it says is the high-growth market for gastrointestinal treatments. Last week, Valeant announced it bought the rights to a prostate cancer vaccine and other assets from Dendreon Corp. for $495-million. For 2015, Salix revenues are expected to be hit by more than $500-million in costs related to the working down of wholesale inventory levels for its top four products, Valeant said. The offer – which Mr. Pearson said is the result of 3 and 1/2 weeks of talks with Salix – will be financed with a combination of bank debt and bonds, Valeant said. Asked if the troubles at Salix are behind it, Mr. Pearson replied: “They’re not all behind them, but we know what they are.”