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Valeant claims victory in bidding war for Obagi

File photo of Valeant Pharmaceuticals International Inc. CEO Michael Pearson.

Ryan Remiorz/THE CANADIAN PRESS

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.

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"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.

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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.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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