By Liz Hoffman, Jonathan D. Rockoff and Dana Mattioli
Endo International PLC has made a takeover bid for Salix
Pharmaceuticals Ltd., seeking to upend Valeant Pharmaceuticals
International Inc.'s roughly $10 billion agreement to buy the drug
maker.
Endo offered to buy Salix for $175 a share in cash and stock.
The offer, made in a letter to Salix's board on Wednesday compares
with Valeant's agreement to pay $158 a share for Salix last month.
Endo also would have to swallow a $356 million breakup fee, or
roughly $5.50 per share, that would be owed to Valeant should Salix
walk away from the deal.
The surprise move is the latest sign of the torrid pace of
consolidation in the drug industry, which has recently been
reshaped through a series of large tie-ups, many driven by tax
considerations. Last year, $268 billion in pharmaceutical mergers
were announced globally, more than double the volume in 2013,
according to Dealogic. And 2015 is off to an even faster start,
with $65 billion of transactions year to date, up from $39 billion
over the same period in 2014.
Salix, which makes treatments for the millions of people
suffering from stomach disorders, last year had been close to a
deal to sell itself to Allergan Inc., which itself was being
pursued by Valeant.
After Allergan walked away from those talks--and agreed to be
bought by Actavis PLC--Salix sought another buyer. Endo was one of
the suitors vying for Salix, but its bid of $150 a share in cash
and stock fell short of Valeant's, according to people familiar
with the matter.
It isn't clear why Endo didn't make a higher bid then.
When the two companies were in talks late last year, Allergan
had offered to pay $175 a share for Salix--even after discovering
an inventory glitch, according to a regulatory filing and a person
familiar with the matter. That makes Valeant's deal for $158 a
share look like a bargain, and may help explain why its shares
surged on the agreement.
Shares of Endo and Salix were halted for trading Wednesday.
Before the halt, Endo fell 1.1% to $88.01, while Salix rose 6.4% to
$167.80. Valeant, in Toronto trading, dropped 3.3% to $247.10.
This isn't the first time Endo has taken on a spoiler role. Last
year, it broke up Auxilium Pharmaceuticals Inc.'s deal to merge
with QLT Inc., swooping in with a $2.6 billion to buy Auxilium.
Endo's latest move pits its Chief Executive, Rajiv de Silva,
against his former mentor, Valeant CEO Michael Pearson. Both men
were consultants at McKinsey & Co., and Mr. de Silva was one of
Mr. Pearson's top lieutenants at Valeant, serving as the company's
president and chief operating officer before leaving to take the
helm at Endo in 2013.
Under Mr. de Silva, Endo has borrowed from some of Valeant's
playbook as it remakes itself, reorganizing into separate operating
units, unloading unwanted businesses, hunting for acquisitions and
buying proven drugs in lucrative markets like skin treatments,
instead of relying on risky investments in early-stage research.
But Endo also sees itself as different from Valeant by, for
instance, investing heavily in late-stage drug development that
could yield organic growth.
Like Valeant had earlier, Endo used an acquisition--its 2014
purchase of Paladin Labs Inc.--to lower its taxes by relocating
abroad. Buying Salix, however, would be a big bite for Endo, which
has a market value of roughly $15 billion.
Salix has lately bounced from one possible deal to another. Last
fall, around the time Allergan was considering buying the company,
Salix called off a planned acquisition of a unit of a European drug
company amid shareholder pushback and new regulations aimed at
deterring such tax-driven deals, known as inversions.
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 for the year.
The renewed competition for Salix highlights a recent surge in
foreign takeovers of U.S. drug providers. Companies like Valeant,
which is based in Canada and pays less than 5% of its profit in
taxes, and Endo, incorporated in Ireland, have been on the takeover
hunt in the U.S. of late. They are often able to outbid U.S.
rivals, in part because of tax savings, deal makers say.
Raleigh, N.C.-based Salix sells a drug called Xifaxan that some
analysts say could exceed $1 billion in yearly sales if the Food
and Drug Administration approves it to treat diarrhea caused by
irritable bowel syndrome. The company reported $1.1 billion in
total revenue last year.
Write to Liz Hoffman at liz.hoffman@wsj.com, Jonathan D. Rockoff
at Jonathan.Rockoff@wsj.com and Dana Mattioli at
dana.mattioli@wsj.com
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