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Cash-Strapped Valeant (VRX) in Talks to Divest Salix (SLXP) to Takeda (TKPYY) for as Much as $10 Billion

11/1/2016 3:06:28 PM

Cash-Strapped Valeant in Talks to Divest Salix to Takeda for as Much as $10 Billion November 2, 2016
By Mark Terry, Breaking News Staff

Laval, Quebec-based Valeant Pharmaceuticals International (VRX) is in talks to sell off its Salix (SLXP) gastrointestinal drugs business.

The embattled company, which has been mired in numerous scandals, and is $31 billion in debt, has been in the process of selling off some assets to help pay down those debts. Under the new leadership of chairman and chief executive officer Joseph Papa, the focus of sales was supposed to be on what Papa referred to as “non-core assets.” The Salix franchise, however, doesn’t fall into that category, and includes Xifaxan, a drug to treat diarrhea, that brought in $200 million in sales in the second quarter.

But analysts think Salix could go for as much as $10 billion, and according to the Wall Street Journal, at least $8.5 billion could be in cash in addition to future royalties. Valeant bought Salix in 2015 for $14.5 billion.

An unidentified source had indicated that Valeant is in talks with Japan’s Takeda Pharmaceutical Co. (TKPYY) for the acquisition. In a statement released today, Takeda said, “Takeda is continuously considering various options aiming to accelerate its growth. At this point, we have nothing to be disclosed.”

Valeant is known as a serial acquirer, with the number of acquisitions in the last eight or nine years exceeded 120, which accounts for some of the debt.

In late September, Valeant announced it wanted to sell its iNova Pharmaceuticals subsidiary for $1 billion. iNova had annual revenue of about $100 million, and makes drugs mostly sold in Australia and New Zealand, although it also markets to Africa and Asia. Valeant acquired the company in 2011 for $625 upfront and $75 million in various milestone payments.
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There was even talk at one point that it might sell off its Bausch & Lomb subsidiary, which it acquired in 2013 for $8.7 billion. But that appears to be off the table.

Valeant’s former chief executive, J. Michael Pearson, and former chief financial officer, Howard Schiller, may be facing a criminal investigation by U.S. prosecutors. This investigation is looking at possible accounting fraud related to Valeant’s connections to now closed specialty pharmacy company, Philidor Rx Services.

The company has been under investigation by the U.S. attorney’s office in New York since last year over Philidor’s accounting practices. There have also been investigations into its drug pricing policies.

A sale of Salix to Takeda has a certain amount of logic to it. “There is already synergy—it fits in to products they already have,” said Kailash Chhaya, a Tokyo-based vice president in Moody’s Investors Service corporate finance group, to Bloomberg.

And apparently Takeda had discussed a possible takeover earlier this year, but Valeant turned it down. “A major acquisition could be a negative for Takeda’s share price due to uncertainties over the near term,” said Fumiyoshi Sakai, an analyst with Credit Suisse in a research note today. “Even if the acquisition is a good fit in strategic terms, it will take time to evaluate any synergies and get the two companies working together.”

Valeant stock is currently trading for $21.57.

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