Salix Pharmaceuticals, a maker of gastrointestinal drugs that has been courted by at least four potential suitors over the last year, has finally found a buyer.
Valeant Pharmaceuticals, the acquisitive Canadian pharmaceutical company, has agreed to pay US$10.4 billion for Salix, or US$158 a share in cash. Including debt, the transaction is valued at about US$14.5 billion.
The deal is a turning point for both companies.
For Valeant, which spent the better part of last year unsuccessfully trying to acquire Allergan, the maker of Botox, the acquisition represents a return to form for the company and its chief executive, Michael Pearson.
Valeant is known as an aggressive buyer of smaller drug companies, and failing to secure Allergan, even with the help of hedge fund billionaire William Ackman, was a rare defeat.
And for Salix, which has been courted by Allergan, Actavis and Shire in recent months, the sale to Valeant will put an end to constant deal speculation.
Salix’s share price has risen steadily as speculation of a deal intensified, jumping more than 50 percent in the last three months alone. Sales of the company’s more than 22 drugs, which include Xifaxan, Uceris, Relistor and Apriso, have been growing rapidly. Revenue for this year is expected to exceed US$1.4 billion.
However, Salix, based in Raleigh, North Carolina, has also had trouble with overstocked inventory for its drugs in recent months. Valeant believes it can manage the issues once it owns the company.
By acquiring Salix, Valeant gains another set of products it can plug into its expanding sales pipeline. Valeant is known for acquiring products and expanding their sales, instead of spending billions on research and development in hopes of discovering lucrative new drugs.
Among the deals that have given Valeant a market value of more than US$58 billion was the acquisition of Bausch & Lomb, the eye care company, in 2013 for about US$8.7 billion.
This deal is an unusual turn of events for Valeant. Last year, as Valeant was pressuring Allergan to agree to a deal, Salix nearly played spoiler. Allergan almost acquired Salix late in the summer, a deal that would probably have made Allergan too expensive for Valeant.
However, Allergan never bough Salix, agreeing to sell itself to Actavis for US$66 billion and leaving Valeant on the sidelines during a banner year for healthcare dealmaking.
Salix and Valeant said the combination would lead to cost savings of at least US$500 million within six months, mostly through reducing corporate overhead and research and development spending. They expected the deal to close in the second quarter of this year.
Though some jobs will be in jeopardy at Salix, Valeant said it did not plan any immediate reductions to Salix’s specialty sales force.
Pearson also said Valeant would save money by reducing Salix’s tax rate. Valeant has an effective tax rate of just 4 percent.
In a conference call with analysts and investors scheduled for yesterday morning, Valeant executives will discuss its fourth quarter and full year results and the deal.
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