Endo Health (ENDP) and Auxilium Pharmaceuticals (AUXL) finally came to terms in ongoing buyout negotiations, with ENDP handing over $2.6 billion ($33.25 per share) in cash or stock for the smaller men’s health company. The companies have continued negotiations since Auxilium rebuffed an earlier $2.2 billion offer from Endo, in mid-September.
Our view has been that an AUXL-ENDP deal would get done. AUXL shareholders have been through a tumultous few years, even under the leadership of newcomer and lauded CEO, Adrian Adams. Our suspicion was that AUXL shareholders would rather take the premium that accompanies a deal than wait to see how the planned merger with QLT Inc (QLTI) played out. Sure enough, ENDP has increased its offer by 18% and the two have finalized an agreement.
This leaves QLT Inc out in the cold. QLTI and Auxilium had been in the midst of their own merger, and AUXL is now obligated to pay QTLI a $28.4 million breakup fee: or $0.55 per share in cash. QLTI put itself on the auction block in late 2013. The small Canadian company engaged Credit Suisse to pursue strategic alternatives shortly after returning a glut of cash to shareholders. We’ve written in the past about this board’s commitment to shareholders. Jason Aryeh, QLT’s Chairman of the Board, said on Thursday that the company would immediately re-engage its assessment of potential strategic options. With the breakup fee, QLT Inc has around $3.25 per share in cash, a phase 2 orphan opthalmology asset, and is trading at just over $4.00. Though it may take time, our view is that QLTI will figure out an alternative exit strategy.
Endo expects the combined company to achieve annual cost synergies of approximately $175 million, fully realized on an annual basis in the first year after closing. The transaction is expected to be immediately accretive post-close, and meaningfully accretive in each year after. Auxilium stockholders may elect one of three options: 100 percent equity (0.488 Endo shares per Auxilium share); 100% cash ($33.25 per Auxilium share); or a mix of $16.625 in cash and 0.244 Endo shares per Auxilium share. The cash consideration may not exceed 50% of the total equity value, and the equity consideration will not exceed 75% of the total equity value.
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One or more of PropThink’s contributors are long QLTI or ENDP.
