Valeant agrees to buy Salix for $10.1bn

April 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Valeant Pharmaceuticals International, Inc. and Salix Pharmaceuticals, Ltd have announced that they have entered into a definitive agreement which will see Valeant acquire all of the outstanding common stock of Salix for $158 per share in cash – a total enterprise value of approximately $14.5bn.

The acquisition is structured as an all-cash tender offer for all of the outstanding shares of Salix common stock at a price of $158 per share followed by a merger in which each remaining untendered share of Salix common stock would be converted into the right to receive the same $158 cash per share consideration as in the tender offer.

The all-cash offer will be financed through a combination of bank debt and bonds. As a result of the need to draw down inventories, EBITDA will be artificially low in 2014 and 2015, resulting in the initial net leverage ratio of approximately 5.6. Valeant is committed to reducing its net leverage ratio to be below 4.0 by the second half of 2016. As a result of the plan to reduce wholesaler inventory levels in 2015, the transaction is expected to be modestly accretive to 2015 cash EPS, but over 20 percent accretive to 2016 cash EPS.

Valeant has conducted extensive due diligence on Salix’s standalone wholesaler inventory levels, standalone inventory work down plan, and associated potential litigation and regulatory exposure. Valeant expects to work down wholesale inventory and plans to target two months or less of wholesale inventory by year-end 2015. The net impact of the excess inventory on 2015 revenues is expected to be greater than $500m.

Valeant is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of dermatology, eye health, neurology and branded generics.

“Salix’s market-leading gastrointestinal franchise is an ideal strategic fit for Valeant’s diversified portfolio of specialty products,” said J. Michael Pearson, Valeant’s chairman and chief executive. “The growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are outpacing the market in terms of volume growth and a promising near-term pipeline of innovative products. With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development.”

Salix is a widely recognised gastrointestinal market leader with a portfolio of 22 total products, including the prescription brands Xifaxan, Uceris, Relistor and Apriso.

Thomas W. D’Alonzo, chairman of the board and acting chief executive of Salix, said: “We are pleased to have reached an agreement with Valeant, which is a logical partner and importantly, creates immediate value for our shareholders. Combining Salix’s leading market position in gastroenterology with Valeant’s scale and resources will create a stronger and more diverse business committed to providing better health solutions to health care providers and their patients. We are proud of the accomplishments of our Salix team. Together, we have built our company into the leading gastrointestinal specialty pharmaceutical company, providing solutions for patients and healthcare providers. We look forward to working with the Valeant team to ensure a smooth transition.”

Assisting the transition is Sullivan & Cromwell LLP as Valeant’s legal counsel and Deutsche Bank and HSBC as financial advisers. For Salix, legal counsel was provided by Cadwalader, Wickersham & Taft LLP and the financial advisers were Centerview Partners and J.P. Morgan.

Approved by the boards of directors of both companies, the Valeant/Salix transaction is expected to close in the second quarter of 2015.

Fraser Tennant