Vancouver’s former biotechnology darling QLT Inc. is merging with a U.S. biopharmaceutical player that wants both access to the Canadian marketplace and a more attractive tax regime.
Auxilium Pharmaceuticals Inc. will take control of QLT in a transaction that will create a British Columbia-headquartered company called New Auxilium, in which existing Auxilium shareholders will own 76 per cent, and QLT shareholders will own 24 per cent. The deal allows Auxilium to take advantage of Canada’s lower corporate tax rates – a strategy that has been employed by other pharmaceutical companies looking to lower their tax rates in recent years.
The two companies said Thursday the deal awards QLT shareholders a 25 per cent premium on their shares, as of Wednesday’s closing price on the Nasdaq exchange. That would value the company at $344.7-million (U.S.).
“The combined company’s Canadian-domiciled structure creates a more competitive platform to drive partnering and mergers and acquisitions, and provides us with key tax synergies,” said Adrian Adams, chief executive officer of Pennsylvania-based Auxilium on a conference call with analysts. He said the deal will allow the company to lower its tax rate from more than 35 per cent to the mid-20-per-cent range.
“They’re able to go out and buy other companies because they can afford to pay more and derive more value because of lower taxes,” said Michael Yee, biotechnology analyst with RBC Dominion Securities. “They can make a more competitive bid for companies.”
The deal echos moves by other U.S. pharmaceutical companies that have moved their head offices and changed company ownership structures to lower their tax rates.
The deal is expected to close in the fourth quarter of the year, pending regulatory and other approvals.