Valeant Raises Offer To $173/Share In New Deal for Salix--6th Update

By Liz Hoffman 

Valeant Pharmaceuticals International Inc. raised its price for Salix Pharmaceuticals Ltd. by about a billion dollars in a new deal that knocked out rival bidder Endo International PLC.

Valeant increased its per-share payment to $173 a share, or about $11.1 billion total, up $15 from its original offer of $158. The higher, all-cash price prompted Endo to withdraw its rival cash-and-stock bid, valued at $172.56 a share through Friday.

"While we are disappointed with this outcome, we have been and will continue to be disciplined in our approach to potential acquisitions," Endo said in a news release, adding that it would turn its attention to its "robust deal pipeline." Endo's bid had been seen taking longer to close and faced more uncertainty as it required a vote of Endo's shareholders.

Valeant shares jumped 2.5% Monday to $202.45 in morning trading, after dipping last week on news of the Endo offer. Salix shares rose 1.9% to $172.67, in line with the new Valeant offer, and Endo added 2.7% to $89.68.

Salix makes drugs to treat stomach disorders, a fast-growing area of specialty pharmaceuticals.

Valeant Chief Executive Michael Pearson--coming off a bruising, failed attempt to acquire Botox maker Allegan Inc. last year--had been eager not to let Salix slip away, according to people familiar with the matter. A serial acquirer, Valeant has grown quickly in recent years by buying companies with proven drugs, then cutting costs, rather than depending on risky research in early-stage products.

It wasn't immediately clear how Valeant plans to pay for its amended agreement. The company has discussed a new stock issuance, perhaps supported by large existing shareholders including Pershing Square Capital Management LP and ValueAct Capital Management LP, but the arrangements remained influx over the weekend, according to people familiar with the matter.

As part of Valeant's recut deal, announced Monday, Salix increased by $100 million, to about $450 million, the breakup fee it would owe Valeant if Salix walked away.

Salix also agreed to shorten from Aug. 20 to May 1 the date until which Valeant must keep its offer on the table. If the offer's conditions--principally, that a majority of Salix shareholders tender their stock--haven't been satisfied by April 8, Valeant's offer will drop back to $158 a share.

Valeant first announced its agreement to buy Salix for about $10 billion in February. Endo, a fast-growing, smaller drug maker run by a former Valeant executive, swooped in last week with a rival bid.

Drug companies have been active deal makers. Last year, $268 billion in pharmaceutical mergers and acquisitions were announced globally, more than double the volume in 2013 and the biggest total since Dealogic began keeping records in 1995. This year is off to an even faster start, with $65 billion of transactions announced, versus $39 billion over the same period in 2014.

Deal-making is at the heart of Valeant Chief Executive Michael Pearson's strategy. Valeant said it has done more than 100 transactions including joint ventures since Mr. Pearson took the helm in 2008.

A mix of ingredients is propelling the activity in the drug industry. Beset by slowing growth, the companies are seeking mergers that will enable them to slash overlapping costs and pick up replacements for aging drugs that in some cases are losing patent protection. They are being encouraged by an ability to borrow funds at rock-bottom interest rates. But perhaps the biggest driver of all, analysts say, is taxes.

A number of U.S. drug companies in recent years bought foreign rivals largely to be able to move their tax locales to foreign countries with lower corporate taxes, in deals known as inversions. One such deal begot another, as companies fearful of falling behind inverted rivals sought their own acquisitions. As the U.S. moved last year to clamp down on such transactions, those companies that had already managed to invert intensified their hunt for deals in the U.S., which offer them the opportunity to spread their favorable tax rates over a wider base of income.

No company better illustrates the welter of activity than Salix.

Last fall, Salix called off a planned inversion deal of its own after the U.S. Treasury implemented rules aimed at deterring such deals. Around the same time, Allergan Inc. held takeover talks with Salix as the Botox maker attempted to fend off a hostile takeover bid from Valeant. Valeant itself had inverted years earlier and boasts a tax rate of less than 5%.

After Allergan walked away from Salix-- and agreed to be bought by another inverted company, Actavis PLC--Salix sought another buyer. The bidding process, which culminated in February, ultimately drew five suitors, all based abroad or soon to be. Endo, which inverted in 2014, was one of them, but its bid of $150 a share fell short of Valeant's.

In November, Salix disclosed a backlog of wholesaler inventory that suggested demand for its top drugs might not be as high as previously thought. Its CEO later resigned, and the company lowered its earnings guidance.

Write to Liz Hoffman at [e-mail]

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