The bidding war for Salix Pharmaceuticals appears to be over.
Endo International withdrew its offer for Salix on Monday after Valeant Pharmaceuticals raised its all-cash bid for the Raleigh company from $158 per share to $173 per share.
The move seemingly brings an end to a 9-month roller coaster ride during which Salix has been in discussions with multiple potential suitors. The major beneficiaries of the boardroom drama ultimately turned out to be Salix shareholders.
Valeant’s revised offer price of roughly $11.1 billion represents an additional $1 billion for Salix investors. Including Salix’s debt, the deal is valued at $15.8 billion.
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Valeant now expects to close the acquisition on April 1. If all the conditions for closing the deal aren’t satisfied by end of day April 8, the offer price will drop back to $158 per share.
Valeant made a potential deal with Endo even more challenging by raising the termination fee that Salix would pay to Valeant in the event the deal falls through by $100 million to $456 million. Valeant was forced to raise its bid after Endo offered last week to buy Salix for $175 per share in mostly stock and some cash.
Shibani Malhotra, an analyst with Sterne Agee, said the $173 per share Valeant is paying represents a fair value for Salix, which had revenue of $1.13 billion last year.
“We were definitely taken aback with Endo coming in at that price,” she said. “Any higher and we probably would not have been comfortable with the valuation.”
Salix shares closed Monday up $3.35, or 2 percent, at $172.75. Valeant’s stock rose $4.91, or 2.5 percent, to close at $202.34.
Both Endo and Valeant were pursuing Salix with the assumption that the company’s best-selling drug, Xifaxan, will soon be approved to treat irritable bowel syndrome. Salix believes peak annual sales for the treatment could reach $2.1 billion, with sales totaling between $125 million and $150 million during the first four quarters after approval by the Food and Drug Administration. The FDA is expected to rule on Salix’s new drug application in May.
“I think both companies are making the assumption that that goes ahead,” Malhotra said. “Now it could be delayed but the deal only makes sense if it’s approved.”
Salix, which sells drugs to treat gastrointestinal ailments, has a portfolio of 22 drugs. Malhotra said the company initially seemed an unlikely target for Valeant, a serial acquirer that typically cuts research and development spending and shuns building sales channels in new markets.
She said selling Xifaxan to treat irritable bowel syndrome will require working with primary care doctors and gastroenterologists to teach them how to use the drug.
“We believe they know exactly what they’re doing and that they’ve looked at all of this,” Malhotra said of Valeant.
The recent bidding war for Salix represented a remarkable turnaround for the company. Just four months ago Salix shares plunged 34 percent in a single day after the company disclosed that it had been under-reporting the inventory levels of several of its drugs. The under-reporting was discovered while another potential suitor, Allergen, was doing due-diligence on the company.
Although Salix has had to restate earnings for 2013 and the first three quarters of 2014, the damage to the company ultimately proved to be temporary.
“Really they’ve come right back,” Malhotra said. “... The truth is the reason they’ve been bid up like this is that there are few really valuable assets in the sector and they happen to be one. And despite all the issues, the value of Xifaxan hasn’t changed.”