Valeant Pharmaceuticals Finally Zeros In On Salix Pharmaceuticals

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Feb 24, 2015

Valeant Pharmaceuticals International, Inc. (VRX, Financial) has finally decided to acquire Salix Pharmaceuticals, Ltd. (SLXP, Financial) in a deal valued at $10.1 billion. This acquisition is going to be a mega-merger in the pharmaceutical industry. The Quebec-based company will pay $158 per share for Salix in cash. The announcement was made on Sunday after the boards of both the companies approved the deal.

History of both the companies

Valeant Pharmaceuticals is based in Montreal, Canada and sells a huge range of drugs, including OTC medications as well as medical devices. The pharma company has its main focus on dermatology, neurology and has a portfolio of more than 500 products. Being the largest pharma company in Canada, Valeant was the seventeenth largest public company in 2013. Valeant Pharmaceuticals is known for its acquiring strategy as a part of its growth and expansion. Most of the acquisitions are in the multi-billion dollar range.The company earned $2.3 billion in the fourth quarter of 2014. Cash EPS was $2.58 in the fourth quarter as compared to $2.15 in the same period last year.

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Surprisingly, Salix Pharmaceuticals is a leader in the American gastrointestinal market. The company develops medical devices and drugs to prevent and treat gastrointestinal disorders. The company survived a takeover in 2003 by Axcan Pharma Inc., now Aptalis.Salix shares have been rising since last week due to the deal's anticipation.

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Reason for the acquisition

Salix has been suffering since the last twelve months due to its accounting issues. Top executives started exiting the company and the financial results went back to that of years ago. The CEO Carolyn Logan retired early this year. Salix CFO Adam Derbyshire put down his resignation papers in November 2014. In November, the company revealed that it had incorrectly stated inventory levels of rifaxamin. Hence, the company had no option but to cut its earning forecast. This would obviously affect the revenues and income of Salix. The company has not yet filed its fourth quarter as well as 2014 financial reports and is expected to do so by March 2, 2015.

Acting CEO and Chairman Thomas D’Alonzo said that under his management, third party advisers had been hired for opinions on options or a sale. Shire Plc (SHPG, Financial), the British drug-maker wanted to acquire Salix. Endo International Plc (ENDP, Financial) had also expressed keen interest to acquire Salix, but the deal did not go through. Even though the company faced accounting issues, analyst stated that they had high expectations from rifaxamin.The company was even contemplating using rifaxamin as a treatment for irritable bowel syndrome with diarrhea. They were awaiting approval from FDA. D'Alzono said that the acquisition will create a diverse business committed to providing customers with the best health solutions as well as health care provides. Salix's leading market position in the field of gastroenterology and Valeant’s scale and resources seems to be a deadly combination. The transaction is expected to close in the second quarter. No change in Valeant’s credit ratings is expected. Valeant chairman and chief executive J. Michael Pearson said that Salix was a perfect fit for Valeant's portfolio of specialty products. He also said that the company will focus on buying more smaller and private companies in 2015.

Valeant's acquiring spree

Valeant has a market capitalization of around $53.26 billion due to its acquiring spree. Valeant acquired Bausch & Lomb, the eye products company in 2013 for $8.7 billion. Valeant also tried to acquire Allergan (AGN, Financial) in 2014, but the deal failed to materialize. If it would have gone through, the acquisition would be the biggest deal in the pharmaceutical industry. Valeant now expects to earn more than $500 million in annual savings now that acquisition with Salix is materializing. Valeant's legal counsel was Sullivan & Cromwell LLP and Cadwalader, Wickersham & Taft LLP advised Salix.