By Liz Hoffman
Valeant Pharmaceuticals International Inc. has recut its agreed
deal to buy Salix Pharmaceuticals Ltd., increasing the price to
$173 a share, or about $11.1 billion.
The amended agreement is meant to fend off a rival
cash-and-stock bid lobbed last week by Endo International PLC. That
bid was worth about $172.50 at Friday's close, and could take
longer to close and face more uncertainty as it requires a vote of
Endo's shareholders.
As part of the recut deal, Salix increased by $100 million, to
about $450 million, the breakup fee it would owe Valeant if Salix
walked away, the people said. That change makes another topping bid
by Endo more expensive.
Salix also agreed to shorten from Aug. 20 to May 1 the date
until which Valeant must keep its offer on the table, the people
said.
Valeant first announced its agreement to buy Salix for about $10
billion in February.
Salix makes drugs to treat stomach disorders, a fast-growing
area of specialty pharmaceuticals.
Drug companies have been active deal makers. Last year, $268
billion in pharmaceutical mergers and acquisitions were announced
globally, more than double the volume in 2013 and the biggest total
since Dealogic began keeping records in 1995. This year is off to
an even faster start, with $65 billion of transactions announced,
versus $39 billion over the same period in 2014.
Deal-making is at the heart of Valeant Chief Executive Michael
Pearson's strategy. Valeant said it has done more than 100
transactions including joint ventures since Mr. Pearson took the
helm in 2008.
A mix of ingredients is propelling the activity in the drug
industry. Beset by slowing growth, the companies are seeking
mergers that will enable them to slash overlapping costs and pick
up replacements for aging drugs that in some cases are losing
patent protection. They are being encouraged by an ability to
borrow funds at rock-bottom interest rates. But perhaps the biggest
driver of all, analysts say, is taxes.
A number of U.S. drug companies in recent years bought foreign
rivals largely to be able to move their tax locales to foreign
countries with lower corporate taxes, in deals known as inversions.
One such deal begot another, as companies fearful of falling behind
inverted rivals sought their own acquisitions. As the U.S. moved
last year to clamp down on such transactions, those companies that
had already managed to invert intensified their hunt for deals in
the U.S., which offer them the opportunity to spread their
favorable tax rates over a wider base of income.
No company better illustrates the welter of activity than
Salix.
Last fall, Salix called off a planned inversion deal of its own
after the U.S. Treasury implemented rules aimed at deterring such
deals. Around the same time, Allergan Inc. held takeover talks with
Salix as the Botox maker attempted to fend off a hostile takeover
bid from Valeant. Valeant itself had inverted years earlier and
boasts a tax rate of less than 5%.
After Allergan walked away from Salix-- and agreed to be bought
by another inverted company, Actavis PLC--Salix sought another
buyer. The bidding process, which culminated in February,
ultimately drew five suitors, all based abroad or soon to be. Endo,
which inverted in 2014, was one of them, but its bid of $150 a
share fell short of Valeant's.
In November, Salix disclosed a backlog of wholesaler inventory
that suggested demand for its top drugs might not be as high as
previously thought. Its CEO later resigned, and the company lowered
its earnings guidance.
Write to Liz Hoffman at liz.hoffman@wsj.com
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