Valeant Pharmaceuticals International Inc.'s apparent victory in the bidding war for skin-care company Obagi Medical Products Inc. should strengthen its presence in the dermatology segment and open the door to further geographical expansion.
Montreal-based Valeant sweetened its offer for California-based Obagi Medical Products Inc. to $24 (U.S.) in cash per share from $$19.75 last week after its initial bid was trumped by an all-cash $22-per-share proposal from Merz Pharma Group.
Merz said on Monday it's withdrawing from the bidding war, saying it isn't comfortable pursuing the acquisition at these levels.
"Merz is a disciplined buyer and at this level the economics of such a transaction do not meet our requirements," chief executive officer Philip Burchard said in a news release.
Canaccord Genuity analyst Neil Maruoka says he'd be surprised to see another rival bid surface.
Obagi no doubt represented a choice opportunity for privately held German firm Merz to gain a foothold in the U.S. market, he said.
"But, with Valeant's dominant position in dermatology and its integration capabilities and ability to drive synergies, there was probably a view that they didn't have the same capacities to drive value," he said.
If the deal goes through for Valeant, it will be a "nice tuck-in for them. This represents all the characteristics they look for in a dermatology acquisition and presents opportunities outside the U.S., like Asia," said Mr. Maruoka.
Valeant, Canada's largest publicly traded drug company, unveiled its $343.8-million offer for Obagi last month. At the initial price of $19.75 per share, the bid represented a 28-per-cent premium to Obagi's closing price on Nasdaq on March 19.
At the revised $24-per-share price, the proposed transaction is valued at about $418-million.
Valeant said when it first announced its proposal that the merger would provide annual cost synergies of at least $40-million.
Formerly Biovail Corp., Valeant made more than a dozen acquisitions last year, including the $2.6-billion takeover of Medicis Pharmaceutical Corp. of Scottsdale, Ariz., a maker of skin-care products.
Obagi's biggest revenue generators are its Nu Derm anti-aging and acne treatment products.
Based in Long Beach, Calif., Obagi posted revenue of $120-million last year.