Valeant Pharmaceuticals International announced on Sunday it had agreed to purchase Salix Pharmaceuticals in an all-cash deal valuing the gastrointestinal drug maker at $10.1 billion.
The Canadian company said it would buy each share of Salix for $158, slightly above the Raleigh, North Carolina-based companys closing price on Friday of $157.85. However, the stock gained nearly 5% during the last session on speculations of a possible deal. Overall the transaction is valued at $14.5 billion, including debt and free cash.
The acquisition of Salix marks the biggest purchase ever for Valeant and follows last years failed hostile takeover of Botox maker Allergan.
The purchase of Salix, which is well-known for its Xifaxan, Uceris and Relistor brands, and its total of 22 product is expected to bring more than $500 million in annual cost savings within six months of closing, the company said in a statement.
The deal also marks another step for Valeants long-standing practice to expand through acquisitions and reduce costs to generate more profit. One of Valeants advantages is its low tax rate of only 5%, in comparison to the 29% effective tax rate that Salix paid in the fourth quarter of 2014.
Valeant moved its headquarters to Canada following its acquisition of pharmaceutical company Biovail in 2010, before the US government crippled the benefits of the so-called “tax inversion” deals.
According to people familiar with the matter Valeant, alongside Shire, Endo, Mylan and Takeda, was approached by Salixs bankers about a possible deal late last year.
Valeant said it will fund the deal by a combination of bonds and bank debt, provided by Deutsche Bank, HSBC and three other lenders.
The company projected that the Salix takeover will contribute a modest amount to 2015 per-share earnings, but projected more than 20% contribution next year.
However, the company warned that its estimated 2015 revenue will be reduced by more than $500 million due to Salixs excessive inventory. In November the company reported it had five to nine months of inventory for its top four product, however, Valeant aims to lower that figure to two months of supplies by the end of this year.
“This acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development,” said Chief Executive Michael Pearson.
In a separate statement Valeant said it had reached a revenue of $8.3 billion during the past year, or 43% up compared to 2013. Net income for the period came in at $913.5 million, or $2.72 per share, compared to a loss of $866 million for the prior year.
Valeant gained 2.86% on Friday and closed at C$217.41, marking a one-year increase of 32.41%. The company is valued at C$72.70 billion.
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