Valeant Pharmaceuticals (VRX) agreed to raise their outstanding offer for Salix Pharmaceuticals (SLXP) to $173/share in cash, from a $158 bid announced on January 16th, after Endo International Plc(ENDP) interjected last week with a bid of their own. Endo has promptly withdrawn their offer for Salix on Monday, saying, “While we are disappointed with this outcome, we have been and will continue to be disciplined in our approach to potential acquisitions.” The increased offer price from Valeant comes on the heels of reporting over the weekend that Endo said that, due to favorable Irish law, they could close a deal for Salix in as little as five weeks. Last Wednesday, Endo made an unsolicited offer for Salix for approximately $175 in cash and stock.
Endo stepping in essentially forced SLXP to pay up $1 billion for the gastrointestinal drugmaker. The deal values SLXP at about $11 billion.
The $173/share Valeant offer – with a closing date of April 1st, a similar offer price with more favorable terms (all-cash), and a crucial upcoming drug decision for Salix in May – is likely to close as Endo doesn’t not want to pay a significant premium to their already rich offer. Salix may also be looking to get the deal closed quickly after announcing an SEC probe in early March regarding its disclosure of heavy inventory in the distribution channel.
The amended agreement represents a 44% premium over SLXP’s $120 share price prior to the original announcement.
Gastrointestinal specialist Salix’s lead product Xifaxan (used in the treatment of IBS and hepatic encephalopathy) accounts for almost half of demand ($167M, +23% y/y in Q4 2014) of the company’s drugs. The growth in demand for Xifaxan has started to wane as new all-oral drugs for the treatment of hepatitis C virus (HCV) has eaten into the demand for HCV-driven hepatic encephalopathy sales of Xifaxan, but Salix is hoping that Xifaxan could receive a big boost in sales if it is approved by the FDA for treatment of IBS when it is reviewed in May.
With a fight going on for market share in its lead product, much of Salix’s extra value lies in their intellectual property and the ability of an acquirer in a country with favorable laws (such as Canada (Valeant) or Ireland (Endo)) to domicile Salix’s IP in a tax haven.
