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Kevin Van Paassen/The Globe and Mail

Valeant Pharmaceuticals International Inc. has leapt out in front in a bidding war for Cold-FX maker Afexa Life Sciences Inc. , bumping up its offer from 71 cents a share to 85 cents on Monday.

But its rival bidder, Paladin Labs Inc. isn't out of the picture yet, after the Alberta Securities Commission struck down Afexa's poison pills that had stood in the way of Paladin's own bid.

The commission ruled late on Monday that Afexa's two shareholder rights plans are to be set aside on Sept. 30. Paladin's hostile bid was effectively blocked by the plans because they required a lengthy offering period and a minimum tender of 50 per cent of the shares – features that Paladin was not willing to include in its offers.

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Still, Paladin's current offer – raised to 81 cents over the weekend – remains below what Valeant is currently willing to pay for Afexa.

Valeant chief executive officer Michael Pearson said his company normally doesn't participate in an auction, but because Afexa's board and management supports its offer, it was willing to leapfrog Paladin's hostile bid.

Paladin, a Montreal company that distributes dozens of brand-name drugs, first bid for Afexa early in August, offering 55 cents a share. Afexa rejected the proposal as inadequate and began to look for white knights.

Valeant emerged with its proposal, which was supported by Afexa, but Paladin has refused to back off.

Valeant says it can afford to pay more than Paladin for Afexa because it is a larger company with more resources in Canada, and an "extensive international consumer footprint." Mr. Pearson said he plans to market the popular cold remedy Cold-FX, which is now sold mainly in Canada, in the United States and other international markets.

Valeant, which was formerly headquartered in California, is now a Canadian company after its merger last year with Mississauga-based pharmaceutical giant Biovail Corp.

Analyst Pooya Hemami of Desjardins Securities said he thinks Paladin could still trump Valeant's current offer, by raising its bid as high as 90 cents to $1. The acquisition would still add value to Paladin, even after paying a $3.75-million break fee to Valeant, he said in a report.

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However, Mr. Hemami noted that "Valeant's quick and decisive response to Paladin's latest bid suggests to us that it is also highly interested in the Afexa asset, and that it could seek to outbid a potential increase in offer from Paladin."

He also noted that Paladin, which already owns almost 15 per cent of Afexa's shares, could make a profit of around $5-million if Valeant's bid ends up successful.

Afexa shares, which were trading at about 35 cents late in July, jumped almost 15 per cent Monday to 86 cents, a level they have not seen since 2009.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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