Salix Pharmaceuticals, Ltd. Linked With Actavis After Calling Off Cosmo Pharmaceuticals S.p.A. Merger Amid Inversion Crackdown

Published: Oct 03, 2014

Salix Pharmaceuticals, Ltd. Linked With Actavis After Calling Off Cosmo Pharmaceuticals S.p.A. Merger Amid Inversion Crackdown

October 3, 2014

By Mark Terry, Breaking News Staff

Raleigh, N.C.-based Salix Pharmaceuticals, Ltd. and the parent company of Cosmo Pharmaceuticals Ltd., headquartered in Italy, today made a joint announcement that they had terminated a previously announced merger agreement priced at $2.7 billion. The merger was a tax inversion deal and the end of the bid is likely the result of changes in the U.S. tax code related to these types of mergers.

“When we announced our agreement to merge with Cosmo Technologies in July we believed the combination would generate significant value for our stockholders through the addition of key products to our development pipeline and a more efficient corporate structure that would enhance our profitability,” said Carolyn Logan, president and CEO of Salix in a press release. “Since then, however, the changed political environment has created more uncertainty regarding the potential benefits we expected to achieve. As a result, Salix and Cosmo have mutually agreed to terminate the proposed transaction.”

In September U.S. Treasury Secretary Jacob Lew presented new rules to discourage domestic companies from moving their headquarters abroad in order to pay lower tax rates. In a press conference, Lew said, “This action will significantly diminish the ability of inverted companies to escape U.S. taxation. For some companies considering deals, today’s action will mean that inversions no longer make economic sense.”

In July 2014, the two companies announced a definitive agreement to merge. Salix would have become a wholly-owned subsidiary of Cosmo Tech, which is domiciled in Ireland, and it would change its name to Salix Pharmaceuticals, plc. Salix would have owned Cosmo’s U.S. patents for rifamycin MMX, methylene blue MMX and Uceris, as well as specified rights of negotiation regarding all products Cosmo or its affiliates planned to develop or commercialize in the U.S. Salix would also have acquired Cosmo’s patents for rifamycin MMX in Canada, certain Latin American countries, India, China, Japan and much of Asia, excluding Australia and New Zealand. It would also have acquired Cosmo’s patents for Uceris in Japan.

“The deal with Salix showed the potential of three products of ours for the U.S.,” said Allessandro Della Cha, CEO of Cosmo in a press statement. “The development path of the pipeline continued in the meantime, so this termination has no effect on value creation. Our focus is now on obtaining approval of SIC-8000 and filing Rifamycin SV and Methylene Blue NDA in the next months. While our strategic options are in our hands, we look forward to a continuation of our long-standing relationship with Salix.”

Now there are indications that Salix is again in discussions with Actavis Plc . There has been much activity in this area, with Botox maker Allergan rejecting a takeover bid from Actavis, with reported discussions of Actavis looking to buy Salix. There are no official announcements yet.

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