Valeant Squirms as Endo International Makes Competing Offer for Salix

Valeant Squirms as Endo International Makes Competing Offer for Salix
March 11, 2015
By Riley McDermid, Breaking News Sr. Editor

The $14.5 billion marriage between Valeant Pharmaceuticals International, Inc. and Salix Pharmaceuticals, Ltd. may have hit a speed bump on the way to the altar, after the Wall Street Journal reported Wednesday that Endo International Plc has made a competing offer for a whopping $170 to $175 a share in cash and stock, a significant premium to Valeant’s $158 per share price.

Bloomberg quoted a source close to the matter as saying Endo’s proposal may be announced as soon as Wednesday. Salix skyrocketed 8 percent to $170 in New York trading before it and Endo’s shares were halted.

Valeant announced Feb. 23 that it had officially acquired Salix Pharmaceuticals (SLXP) for $158 per share in cash, or a total enterprise value of approximately $14.5 billion, financing it was rumored to have cobbled together last week and which reflects the multiple bids on the table.

At that sale price, Valeant would be offering Salix a $14.5 billion value, an interesting price point considering that with its net debt, Salix is currently valued at $10.9 billion. The news that Valeant was in the running pushed shares of Salix up more than 7 percent in trading over the last two weeks, as investors added value in the hopes of getting a higher bid.

The acquisition, which was approved by both companies' board of directors, comes just days after news leaked that U.K. pharmaceutical firm Shire Pharmaceuticals had also advanced its own bid for Salix. That set up a potential bidding war for the bowel-drug company, sources familiar with the deliberations told Reuters.

Shire was speculated to be a good fit for Salix because of its track record buying rare disease related companies, including the $5.2 billion acquisition of NPS Pharmaceuticals, Inc. in January and a $4.2 billion acquisition of ViroPharma Incorporated .

Salix makes irritable bowel syndrome drug Xifaxan but has struggled with inventory issues and financial reporting problems recently.

"Salix's market-leading gastrointestinal franchise is an ideal strategic fit for Valeant's diversified portfolio of specialty products," said J. Michael Pearson, Valeant's chairman and chief executive officer, in a statement.

"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," said Pearson. "With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development."

The news comes amid reports that Valeant is once again going shopping, despite pressure from shareholders and Wall Street analysts to rein in its free-spending buying spree. Since 2008, Valeant has acquired more than 100 smaller companies, a pace Chief Financial Officer Howard Schiller told stakeholders earlier this year that will slow, but will still be active.

Valeant was rumored earlier this month to be mulling over a bid for Raleigh, N.C.-based Salix Pharmaceuticals, though many market watchers worried that Valeant will pay too much for Salix, which has a market value of around $9 billion. Shibani Malhotra, an analyst with Sterne Agee Group, has estimated that the shares could shoot up as high as $170 each after a takeover, a significant bump from where it now sits at $157.85.

“We believe the resolution of the accounting-related overhang should ease investor concerns,” said Malhotra in his note, “as reliable financials will be available near-term for investors as well as potential acquirers.”

Schiller said shareholders should expect "small and medium sized transactions" in 2015, he told the audience of J.P. Morgan Healthcare Conference which began Monday in San Francisco and is the oldest and largest conference of its type. It includes 300 of the largest biotech, healthcare and biopharma companies presenting their top-line data and estimates to 4,000 of eager bankers, analysts, institutional investors, hedge funds and journalists.

Valeant has made 60 acquisitions in six years, including its most recent deal to buy eye care company Bausch & Lomb for $8.7 billion.

Valeant has previously said it aims to be one top five pharma companies by the end of 2016, which means it would need to have a market cap of $150 billion, a difficult task as its debt continues to balloon . Right now, Valeant has $17 billion in debt on its books from $4.9 billion in 2012, a huge leap from $2.6 billion in 2008, when CEO Michael Pearson joined the company.

The company told analysts during a fourth quarter call last year that they hope to keep the deal making up.

"We can't predict the path that will get us to the $150 billion, per se. But we find it's very helpful to set a structure of aspiration,” an executive said at the time. “It's something that we've done every year, and it gives our investors a sense of where we're trying to go. And unless you aim high, you don't achieve high."

BioSpace Temperature Poll
Vertex Pharmaceuticals made news last week when it terminated leases on three properties in Cambridge, Mass, that freed up 313,000 square feet of space in the Genetown area. The company has spent a significant part of 2014 consolidating its operations on the South Boston waterfront, leasing 291,000 square feet of office space at West Kendall Street in Cambridge’s Kendall Square. So we wanted to ask the BioSpace community: Is Boston going to be getting more biotech leases anytime soon, or fewer tenants?

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