Endo Health to Expand by Buying Paladin Labs

Moving from target to hunter, Endo Health (ENDP) announced plans to purchase Paladin Labs (PLB.TO), a Canadian specialty pharmaceutical manufacturer, for $1.5 billion. Both companies will be folded into a newly-formed Irish holding company. ENDP expects the acquisition to boost profits as soon as the transaction closes in early 2014. Shares are up 29% on the news on top of the nearly 70% increase since the start of the year.

PropThink has been bullish on ENDP since late last year. The stock fell in 2012 based on growing concerns about declining sales for its opiate painkiller, Opana ER. Since, the stock has rebounded by more than 110%, and a few of our predictions have come to pass almost perfectly. Get the story, here.

The company moved in the first quarter to clear the decks by lowering guidance and expectations for 2013, bringing in former Valeant (VRX) operating star Rajiv De Silva as CEO in early March. De Silva has a strong history of creating shareholder value at Valeant Pharma through creative acquisitions, divestitures, and unique corporate strategies, and the Paladin transaction at Endo represents one the first in his new role.

Paladin brings expertise with in-licensing innovative pharmaceuticals as well as a track record of acquiring mature or “under-marketed” products from large pharmaceutical companies. The transaction diversifies ENDP’s revenue mix, provides entry into attractive new markets in South Africa and Latin America, and creates an international player in the high-margined specialty pharmaceutical business.

Paladin shareholders will receive 1.6331 shares of New Endo (the holding company) stock and $1.16 (CAD) in cash. The transaction values each Paladin Labs share at $77.00 (CAD), or about a 20% premium to Monday’s closing price. Endo shareholders will receive one share of New Endo for each share of Endo they own at closing. At closing, current Endo shareholders will own approximately 77.5% of the New Endo, and current Paladin Labs shareholders will own approximately 22.5% of the New Endo.

In addition, shareholders of Paladin Labs will also receive one share of Knight Therapeutics Inc., (“Knight Therapeutics”) a newly formed Canadian company that will be separated as part of the transaction. Knight Therapeutics will hold Impavido, Paladin Labs’ product for the treatment of leishmaniasis.

Separately, ENDO reported sales for the third quarter totaled $715 million, down 5% from the year-earlier quarter, but $19 million above analysts’ consensus. Profit (minus charges) rose to $1.34 a share, beating estimates by 23 cents. The firm raised its full-year sales guidance slightly, though in-line with estimates at $2.8 billion (vs. $3 billion last year). Its new EPS range of $4.60 to $4.75 is above current views averaging $4.48 .