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Endo tries to ride out Valeant with $15.7bn bid for Salix

Around $1.2bn more than rival bid

Endo PharmaEndo confirmed yesterday it has submitted a $175-per-share takeover offer for Salix in a bid to entice the company away from a deal with Valeant.

The offer is a sizeable premium over Valeant's $158-per-share offer and values Salix at $15.7bn, around $1.2bn more than the rival bid. 

Endo also says its cash-and-stock offer is better for Salix shareholders than Valeant's all-cash deal as they will end up owning 40% of the combined company, although that clearly depends on one's perspective and some shareholders may prefer to walk away with cash.

Ireland-based Endo focuses mainly on pain-killing medicines but wants to expand its focus into other specialty pharmaceutical sectors. 

Salix would give it an entry into the gastrointestinal therapy category, bringing in products such as traveller's diarrhoea and hepatic encephalopathy therapy Xifaxan (rifaximin), as well as other products like diabetes therapy Glumetza (extended-release metformin), that collectively brought in $1.13bn last year, a 24% increase on 2013.

Salix confirmed in a statement that it had received an unsolicited offer from Endo and would review it with its financial and legal advisors, and one of its largest shareholders has also come out in favour of Endo's bid. 

Paulson & Co - which owns 9% of Salix, described the offer as "very compelling", particularly because of tax benefits, future earnings potential and "strategic benefits." Both Endo and Valeant offer tax advantages because they are domiciled in countries with corporate tax rates lower than the US.

For Valeant, Endo's intervention comes at a particularly inopportune moment, just as it is proceeding with a $9.6bn bond issue to finance its takeover of Salix. 

Moreover, the Canadian company is still smarting after being thwarted in its attempts to buy Allergan, which shunned its advances in favour of a $65bn marriage to Actavis last year, and will be keen to avoid a bidding war for Salix, particularly as Shire has also been rumoured to be interested in the company.

In a statement, Valeant said it was "firmly committed to its all-cash agreed transaction" which provides "immediate and certain value to Salix shareholders."

Salix had also been eyed as a merger target by Allergan during its defense against Valeant, although Allergan eventually backed away from a deal citing accounting irregularities linked to excess inventory levels. Since then chief financial officer Adam Derbyshire and chief executive Carolyn Logan have both left the company.

Endo has form as the disruptive third-party in M&A transactions. Last October, the company broke up a proposed merger between Auxilium and QLT, eventually taking over the former in a $2.6bn deal that added specialty medicine Xiaflex for fibrotic conditions affecting the fingers and penis. 

Article by
Phil Taylor

12th March 2015

From: Sales

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