Valeant Pharmaceuticals International, Inc. VRX announced that it has amended its previously announced merger agreement with Salix Pharmaceuticals Ltd. SLXP.
We remind investors that Valeant had announced that it intended to acquire Salix for $158.00 per share in cash or a total enterprise value of approximately $14.5 billion during its fourth-quarter earnings call.
As per the amended merger agreement, Valeant raised its offer price by 9.49% to $173.00 or a total value of $15.8 billion. The proposed increase will provide Salix’s shareholders with an additional approximately $1 billion in cash consideration.
The revised offer came after Endo International plc ENDP proposed to acquire all outstanding shares of Salix’s common stock in a stock and cash deal valued at $175.00 per Salix share on Mar 11, 2015. However, Endo has now withdrawn its offer.
We note that Salix is a leader in the gastrointestinal (GI) market with a wide variety of drugs such as Xifaxan 550 (for reducing the risk of recurrence of overt hepatic encephalopathy in adults), Uceris (for controlling mild-or-moderate ulcerative colitis), Relistor (for opioid-induced constipation) and Apriso (for ulcerative colitis).
Meanwhile, Valeant expects to close the transaction on Apr 1, 2015 if the minimum tender condition is satisfied by Mar 31. However, the offer price will revert to the original price if all conditions of the tender offer are not fulfilled by Apr 8.
Our Take
Valeant currently carries a Zacks Rank #2 (Buy), while Salix is a Zacks Rank #1 (Strong Buy) stock. Given the higher value of Endo International’s offer over Valeant, investors had been expecting the move.
After a failed bid in 2014 to acquire Allergan Inc. AGN, Valeant has now zeroed in on Salix Pharma. The company aims to further diversify its specialty product portfolio with the acquisition as the GI market looks attractive at this juncture.
Valeant has been quite aggressive on the acquisition front for the last two years, which contributed to its solid growth. Dermatology may be the focal point for Valeant but the company is set to broaden its product portfolio.
We note that Valeant had acquired Bausch+Lomb in Aug 2013 in order to strengthen its ophthalmology business, which used to be a miniscule portion of its portfolio. We expect investor focus to remain on further updates from the company on the acquisition proposal.
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