Valeant Pharmaceuticals International Inc. is back in major deal-making mode with the all-cash $10.4-billion (U.S.) agreement to acquire gastrointestinal disorders specialist Salix Pharmaceuticals Ltd.
Laval, Que.-based Valeant said on Sunday it has struck a definitive agreement with Raleigh, N.C.-based Salix to pay $158 per share for the company, whose brands include Xifaxan, Uceris and Relistor. Xifaxan is seen as having potential in the treatment of irritable bowel syndrome.
Total enterprise value of the deal, which includes the Salix debt being assumed, is $14.5-billion.
On the Toronto Stock Exchange, Valeant's shares peaked at $252.60 early Monday. They gave up some gains but were up nearly 14 per cent or $30.29 at $247.70 in late morning trading.
The transaction, which was reported several weeks ago as being in the works, is the first multibillion deal for Valeant since it was thwarted in its $54-billion hostile offer for Botox-maker Allergan last year, in partnership with hedge-fund manager Pershing Square Capital Management. Actavis PLC trumped its bid with a $66-billion friendly proposal.
Valeant came under fire during the protracted battle for Allergan, with allegations from its target and other critics that it is nothing more than a serial acquirer that slashes R&D and staff once it has scooped up a company, has little organic growth and produces opaque financial results.
Valeant – which has a significant presence in Bridgewater, N.J. – has also been criticized for using its international structure to take advantage of lower tax rates in Canada.
"There were a lot of allegations made about our company that just aren't true, so we waited to show a number of clean quarters" including a fourth quarter that will boast 16 per cent organic growth, Valeant chairman and chief executive officer Michael Pearson said in an interview Sunday.
"We've accomplished what we wanted to show in terms that our base business is strong and thriving."
The Salix deal represents further diversification for Valeant, this time into what it says is the high-growth market for gastrointestinal treatments. Last week, Valeant announced it bought the rights to a prostate cancer vaccine and other assets from Dendreon Corp. for $495-million.
Valeant's specialties include oral care, vision treatment, podiatry, wrinkle-shrinking and acne medicine.
"We've always liked Salix from a standpoint of another specialty area that's growing. Like dermatology and ophthalmology, it's an attractive therapeutic area," Mr. Pearson said.
"The growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are outpacing the market in terms of volume growth and a promising near-term pipeline of innovative products," he said in a news release.
Valeant expects to wring more than $500-million in cost savings from the combined company within six months, "primarily from reductions in corporate overhead and R&D rationalization ... " But it said there are no plans to cut Salix' specialty sales force.
For 2015, Salix revenues are expected to be hit by more than $500-million in costs related to the working down of wholesale inventory levels for its top four products, Valeant said.
The offer – which Mr. Pearson said is the result of 3 and 1/2 weeks of talks with Salix – will be financed with a combination of bank debt and bonds, Valeant said.
Somewhat ironically, trying to buy Salix was part of Allergan's defence strategy against Valeant last fall. However, Allergan opted not to proceed after it discovered accounting irregularities at Salix. The financial problems resulted in the resignation of the chief financial officer and the CEO's retirement.
Asked if the troubles at Salix are behind it, Mr. Pearson replied: "They're not all behind them, but we know what they are."
Mr. Pearson has stated in the past he wants Valeant to be one of the top five global drug companies by the end of 2016.
"We're continuing our march to create value for shareholders. If we're successful at some point, we will get to that top five. It may not be the end of '16. Maybe it's later," he said on Sunday, revising that prediction.