Salix Pharmaceuticals, Ltd. Faces Shareholder Revolt On Cosmo Pharmaceuticals S.p.A. Deal

September 17, 2014

By Riley McDermid, BioSpace.com Breaking News Staff

Salix Pharmaceuticals Ltd (SLXP) may have a shareholder revolt on its hands, after reports have surfaced that some of its top 20 investors are threatening to vote down a proposed deal to buy a unit of Cosmo Pharmaceuticals SpA (COPN), Reuters reported Wednesday.

Instead, the investors want Salix to consider putting itself on the block, unnamed sources told Reuters. Salix, which focuses on therapies for gastrointestinal diseases, has a $9.2 billion market capitalization.

Biotech firm Salix announced in July that it would merge with Cosmo's Irish subsidiary--and reap the tax benefits that came with a move abroad. The proposed deal had Salix shareholders swooping up 80 percent of a the Irish unit, valued at around $3 billion.

But if the company decides to torpedo the deal, it will have to pay a $25 million break-up fee. Salix has also been rumored to be in talks with botox maker Allergan Inc. (AGN) as a possible exit target, news which sent Salix's shares soaring over 38 percent in the last few months, to $155.87 at Tuesday's close.

That streak of good luck appears to have run out for the Raleigh, N.C. based Salix.

At least a quarter of the company's investors are considering voting down the Cosmo deal, Reuters reported, because they'd rather see a sale to a larger drugmaker such as Actavis Plc (ACT), Valeant Pharmaceuticals (VRX) or Allergan. Any acquisition deal would have to have majority approval by Salix shareholders. A date for a vote has not been set and the company could not be reached for comment.

Analysts have been bearish on the idea of a Salix-Cosmo marriage, with UBS analyst Marc Goodman labeling it a "a disappointing inversion deal" that would dilute to 2015 earnings, and Oren Livnat of JMP Securities suggesting Salix's long-term strategy makes a sale of the company unlikely anytime soon.

But Piper Jaffray analyst David Amsellem called the deal at the time "compelling," pointing out Salix could benefit from lower taxes for the experimental irritable bowel syndrome drug Xifaxan (rifaximin), which when approved could generate $1.5 billion annually.

Leerink analyst Jason Gerberry has estimated that Salix could emerge as a takeover target by 2015 "if the deal closes and no anti-inversion US tax legislation is passed."