Valeant Pharmaceuticals plans to team with Pershing Square Capital Management and other top shareholders, including ValueAct Capital, to raise its bid for Salix Pharmaceuticals this weekend, according to people briefed on the matter.
The raised offer will be above $160 a share and consist entirely of cash, these people said. The exact price of Valeant’s new offer was not known Friday.
Valeant hopes the increased offer will be enough to end a bidding war that has erupted over Raleigh-based Salix, a maker of gastrointestinal drugs.
Valeant agreed to buy Salix for $158 a share in cash, or about $10 billion, last month. But earlier this week, the drug giant Endo International offered $11.2 billion, or $175 a share, mostly in stock, for Salix.
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The Salix board is meeting Saturday to consider the rival offers, these people said.
While the Endo bid is higher, it also introduces several uncertainties to the sale process for Salix. Among the top concerns for analysts are the need for shareholder votes, a large stock component and the results of a pending treatment approval by the Food and Drug Administration.
Nonetheless, the Endo offer sent Salix shares trading substantially higher, making it difficult for Valeant to stand by its lower bid. Details of Valeant’s new bid were still coming together Friday. Salix shares closed Friday at $169.40, down 65 cents.
To finance the increased offer, Valeant is turning to top shareholders, including Pershing Square, the hedge fund run by William A. Ackman. Pershing Square and Valeant worked closely together for much of past year in an attempt to acquire Allergan, then maker of Botox. But Allergan was eventually acquired by Actavis, earning an enormous profit for Ackman but leaving Valeant with little to show for its efforts. This month, it emerged that Pershing Square had taken a nearly 5 percent stake in Valeant but pledged to remain a passive investor.
Acquiring Salix would be a much-needed victory for Valeant.
Speaking on CNBC on Friday, Ackman expressed confidence in Valeant and its chief executive, J. Michael Pearson.
“I know Mike Pearson very well,” Ackman said. “I worked with him for a year. He’s the most disciplined buyer of companies. He’s not going to overpay for Salix.”
Ackman also suggested Salix shareholders would be wary of accepting so much Endo stock, compared with the cash being offered by Valeant.
“In order for them to take the Endo transaction they have to walk away from an all-cash deal,” Ackman said. “If you think Valeant is getting it on the cheap, then you should buy Valeant stock, which is what we did. We think Valeant stock is very cheap.”
Other investors, including ValueAct Capital, another activist hedge fund that is a big Valeant shareholder, are also said to be helping finance the raised offer for Salix. It was not immediately clear whether the hedge funds would simply lend money to Valeant or use another mechanism to smooth the way for Valeant to prevail in the bidding war.
Valeant is hesitant to take on more debt from banks because it does not want to hurt its credit rating, people briefed on the matter said.
Salix still hasn’t commented on the Endo offer, other than to say it had received it and was reviewing it with its advisers.
Speaking at the Barclays Global Healthcare Conference on Thursday, Endo’s chief executive, Rajiv De Silva, said he hoped the bidding war over Salix would not last too long.
“We have no interest in a long, drawn-out process,” De Silva said. “We hope that this will be resolved quickly. This is, I believe, in the best interest of the shareholders of all three parties involved.”