DUBLIN—On March 11 Endo International plc (ENDP) confirmed that it has submitted a proposal to the board of directors of Salix to acquire all of the outstanding shares of common stock of Salix Pharmaceuticals, Ltd. in a negotiated cash and stock transaction. Based on the closing stock price of Endo on March 10, 2015, the transaction is valued at $175.00 per Salix share.
Endo believes that its cash and stock proposal would provide Salix shareholders with a substantial premium and immediate cash value, as well as the opportunity to participate in the significant upside potential of a global leader in specialty pharmaceuticals with a highly diversified platform for future growth, through a material equity component. Endo believes that its proposal constitutes a "Superior Proposal" under the terms of Salix's Merger Agreement with Valeant Pharmaceuticals International, Inc.
If a negotiated transaction were to be agreed to with Salix, Endo anticipates that the transaction could close in the second quarter and is confident that it would obtain any regulatory and shareholder approvals. The proposed transaction would not be subject to any financing condition.
Additional information regarding Endo's proposal, including the full terms and conditions, are included in a letter that Endo provided to the Salix board of directors, which is filed on Form 8-K with the Securities and Exchange Commission. There can be no assurance that any transaction will result from this proposal.
BofA Merrill Lynch and Credit Suisse Securities (USA) LLC are serving as financial advisors to Endo and Skadden, Arps, Slate, Meagher & Flom LLP is serving as its legal advisor.
Endo International plc is a global specialty healthcare company that develops, manufactures, markets, and distributes branded pharmaceutical, generic pharmaceutical, over the counter medications and medical device products through its operating companies. Endo has global headquarters in Dublin, Ireland, and U.S. headquarters in Malvern, PA.
The same day as the Endo announcement, Valeant Pharmaceuticals International, Inc. (VRX) issued the following statement in response to Endo’s unsolicited offer to acquire Salix (SLXP): "We are firmly committed to our all-cash agreed transaction, which delivers immediate and certain value to Salix shareholders. The tender offer is scheduled to expire at the end of the day on March 31, 2015, and Valeant expects to be in the position to close the transaction on April 1, 2015."
On February 22, 2015 Valeant and Salix announced that they have entered into a definitive agreement under which Valeant will acquire all of the outstanding common stock of Salix for $158.00 per share in cash, or a total enterprise value of approximately $14.5 billion. The transaction was approved by the boards of directors of both companies.
Salix Pharmaceuticals is a widely recognized gastrointestinal market leader with a portfolio of 22 total products, including well-known prescription brands Xifaxan, Uceris, Relistor, and Apriso, as well as a strong near- term pipeline of new assets.
"Salix's market-leading gastrointestinal franchise is an ideal strategic fit for Valeant's diversified portfolio of specialty products," said J. Michael Pearson, Valeant's chairman and CEO. "The growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are outpacing the market in terms of volume growth and a promising near-term pipeline of innovative products. With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development."
Thomas W. D'Alonzo, chairman of the board and acting CEO of Salix, stated, "We are pleased to have reached an agreement with Valeant, which is a logical partner and importantly, creates immediate value for our shareholders. Combining Salix's leading market position in gastroenterology with Valeant's scale and resources will create a stronger and more diverse business committed to providing better health solutions to health care providers and their patients. We are proud of the accomplishments of our Salix team. Together, we have built our company into the leading gastrointestinal specialty pharmaceutical company, providing solutions for patients and healthcare providers. We look forward to working with the Valeant team to ensure a smooth transition."
The combination, should it occur, is expected to yield greater than $500 million in annual cost savings from the cost base of the combined company. Synergies are expected to be achieved within six months of close, primarily from reductions in corporate overhead and R&D rationalization, with the cost to achieve these synergies to be approximately 65 percent. Valeant and Salix will determine how best to integrate the two companies to leverage the combined strengths of both while ensuring a smooth and orderly transition. Consistent with Valeant's approach to integrating Bausch + Lomb, there are no planned reductions to Salix's highly rated specialty sales forces or hospital, key account and field reimbursement teams. The optimal size of the primary care sales force was to be determined through the integration process.
The all-cash offer was to be financed through a combination of bank debt and bonds. As a result of the need to draw down inventories, EBITDA will be artificially low in 2014 and 2015, resulting in the initial net leverage ratio of approximately 5.6.
Sullivan & Cromwell LLP served as Valeant's legal counsel, and Salix was advised by Cadwalader, Wickersham & Taft LLP. Deutsche Bank and HSBC acted as financial advisors to Valeant. Centerview Partners and J.P. Morgan acted as financial advisors to Salix. Fully committed debt financing has been provided by Deutsche Bank Securities Inc., HSBC, Mitsubishi UFJ Securities (USA), Inc., DNB Bank ASA and SunTrust Robinson Humphrey, Inc.
Sterne Agee analyst, Shibani Malhotra, commented on Endo’s formal offer to acquire Salix:
“Endo’s formal offer to acquire Salix for ~$177 per share in stock and cash was an initial surprise for us; however, having spoken to management and based on our estimation of potential synergies, we believe this could be a transformational acquisition for the company. Some investors have questioned the timing of Endo’s offer given that Salix and Valeant have already agreed to a deal, but we expect this was driven mostly by the availability of funding given the pending $1.6bn sale of Endo’s Men’s and Prostate Health device business.”
“If successful, Endo will add an exceedingly rare combination of long duration, high growth assets to its platform, creating significant long-term value for shareholders. That said, we believe it is highly unlikely that Valeant will walk away from Salix and we expect it to increase its $158 per share cash offer. Whether Salix is eventually sold to Endo or Valeant ultimately depends on whether the premium being offered by ENDP in a mostly stock deal is worth the FDA approval risk for Xifaxan in IBS-D and on the near-term performance of ENDP as stock price accretion increases the total consideration for SLXP shareholders.”
“Salix offers a transformational opportunity for Endo, in our view. While Endo’s timing is somewhat unusual, we believe one of the company’s core strengths is its opportunistic management team. With the $1.6bn sale of the device business pending, we believe management saw an opportunity to engage in a transformational deal that, if consummated, could vault Endo into the top tier of organic growth in the sector. While we estimate the Salix deal can provide substantial near-term accretion of 17 percent ($0.89) in 2017, it also offers the exceedingly rare combination of long duration, high growth assets, which we believe would create significant long-term value for ENDP shareholders.”
“Valeant likely to counter bid; ENDP share price performance and investor view on perceived risk of Xifaxan approval for IBS-D likely to determine outcome. Given the 12.8 percent rally in VRX shares since its agreement to acquire Salix, we believe Valeant is likely to counter bid as its shareholders appear to view the Salix deal favorably. At the current ENDP valuation Endo’s offer values Salix at ~$177 per share, nearly $20 higher than Valeant’s $158 cash offer. The ~75 percent equity component of the Endo offer allows Salix shareholders to participate in the upside of the combined entity, however, with the Xifaxan IBS-D PDUFA expected May 27, Endo’s offer also comes with slight risk versus Valeant’s all-cash bid. In addition, Endo’s ability to win this deal depends very much on whether management can convince investors that this is a value-enhancing acquisition (as we believe it is) which should serve to drive up ENDP’s price and therefore total consideration being offered to SLXP shareholders.”
“Both companies possess similar strategic synergy advantages, but the acquisition would be more transformational for Endo given company size. Synergies are more likely to come from cost cutting and elimination of general corporate expense overlap as neither company offers meaningful overlap in the gastroenterology space, but both possess lean operating models.”