Valeant Pharmaceuticals could still be in the driver’s seat in its attempt to acquire Raleigh-based Salix Pharmaceuticals, several analysts wrote in research notes Wednesday.
Analysts with Jefferies said the counter offer issued Wednesday by Endo International was not surprising, though they said the timing was unusual given that Endo had previously been in talks with Salix about a possible acquisition.
Endo has offered to buy Salix for $175 per share in mostly stock and some cash, while Valeant last month reached a deal to acquire Salix for $158 per share in cash.
Under the terms of the Endo deal, Salix shareholders would own 40 percent of the combined company. But David Steinberg, Edward Chung and Amran Gowani with Jefferies said a key question is whether Salix shareholders want to own equity in Endo.
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They said Endo’s assumptions about how much the acquisition would add to its earnings are likely predicated on Salix winning regulatory approval to use its best-selling drug Xifaxan to treat irritable bowel syndrome. The Food and Drug Administration is expected to rule on Salix’s new drug application in May.
“Given the rollercoaster that [Salix] investors have been on during the last nine months, the certainty of “cash-in-hand” may prove more appealing,” the Jefferies analysts wrote.
Analysts with Canaccord Genuity also believe Valeant continues to have the upper hand because its offer is fully financed and all cash. They note that the value of Endo’s offer is dependent on its share price, and also will require the payment of a $356 million breakup fee to Valeant.
On Thursday, Moody’s Investor Service said it had placed a subsidiary of Endo’s on review for a possible credit downgrade. The review was prompted by Endo’s bid for Salix, which the ratings agency said would increase Endo’s financial leverage. Endo’s balance sheet will be strengthened by its pending sale of its men’s urology business, which will provide it with $1.6 billion. The Jefferies analysts said the sale of the business is likely linked to the timing of Endo’s offer for Salix.
Analysts with BMO Capital Markets put the probability of Valeant buying Salix at 70 percent. They note that Valeant could still increase its offer by either raising the cash component or issuing stock.
Valeant’s offer for Salix is scheduled to expire at the end of the day on March 31. Valeant said in a statement Wednesday that it expects to be in a position to close the deal on April 1.