Salix Pharmaceuticals Ltd. (SLXP) announced the end of a $2.7 billion merger agreement with Cosmo Pharmaceuticals SpA (COPN), citing tougher U.S rules for overseas inversions. Salix will make a $25 million payment to Cosmos and the two parties will separate amicably. A statement issued by Carolyn Logan, President and CEO of Salix noted that, “the changed political environment has created more uncertainty regarding the potential benefits we expected to achieve.’’
The Raleigh, North Carolina-based company planned to reverse merge and obtain Irish domicile with the Irish division of Cosmo Pharmaceuticals, creating a new entity owned 80% by Salix shareholders. The deal termination represents a win for U.S federal regulators who have cranked up efforts to discourage tax-saving company deals.
With Salix on the market again, and a new takeout plausible, the courting with potential acquirers has resumed. The two main contesters, Allergan (AGN) and Actavis (ACT), have reportedly been in talks to buy Salix, though the conversation with Actavis seems to be heating up in the past few weeks as the Allergan deal fades.
Allergan has been fervently resisting hostile bidding from Valeant (VRX), refusing a $53 billion buyout and claiming the bid would seriously undervalue the company – currently worth $52 billion. That leaves Allergan with a two-month timeframe until a shareholder vote on December 18 that could force the company to start negotiating. Acquiring Salix, which specializes in gastrointestinal disorders, would increase Allergan’s value by $10 billion, bolstering its growth and expanding its product pipeline. Some Allergan shareholders, however, have publicly opposed the deal over valuation concerns.
Actavis is a better suitor for Salix since the two companies have a more overlapping cost-structure than Allergan, and although the two companies are intensifying talks, no deal is imminent. Actavis, which just completed a $28 million purchase of Forest Laboratories (FRX) in July, has been a target for acquisition by Pfizer (PFE) and made an all-cash buyout offer to Allergan earlier this year, which was rejected. An Actavis-Salix combination might be better positioned to fend off Valeant and make a hotter proposition to Allergan in the future, but the landscape is still too fluid to assess.
News of ending the merger deal between Salix and Cosmos prompted Credit Suisse to upgrade Salix to neutral from Underperform, raising its price target to $155 from $139.
One or more of PropThink’s contributors are long PFE.
