Salix Pharmaceuticals and Canadian rival Axcan Pharma have talked about deals and such over the years. Now, they are engaged in a hostile takeover fight.

Members of the Salix board received a letter from Axcan on Thursday spelling out the terms of Axcan’s buyout offer: $8.75 in cash per share, or $203 million.

When the offer went public, Salix stock was in play and erupted in value. Salix (Nasdaq: SLXP) shot up 37 percent, or $2.71, to close at $9.99 — apparent indication stockholders and investors consider the $8.75 a share offer as undervalued. The stock peaked at $10.55 before falling back.

Despite increasing sales of its drug Colazal, which fights ulcerative colitis, Salix stock has traded as low as $4.29 over the past year after hitting a high of $17.95. It has another drug, which fights traveler’s diarrhea, in the FDA approval pipeline.

Axcan also develops and sells intestinal drugs — one of the reasons the companies have talked on and off about working together.
In January, Salix adopted a poison pill defense against a hostile takeover.

Leon Gosselin, chairman, president and chief executive officer of Axcan, went public with the offer and sent out a press release containing the letter, citing a refusal of Salix to meet to discuss a buyout. Recently, David Mims, the chief operating officer of Salix, cancelled a meeting on short notice.

“We are resolute in pursuing this course, but continue to believe that a negotiated agreement is in the best interest of your stockholders,” Gosselin wrote.

Salix had no immediate comment other than to say its board would review the offer and respond no later than April 24. The News & Observer said Mims warned that if the deal went through there would be layoffs at Salix.

Analysts divided on move

Two analysts were somewhat negative on the deal — but cited different reasons.

Wachovia Securities analyst Michael Tong told Dow Jones New Service the offer was inadequate. Pointing out that Salix has considerable cash on hand equivalent to $2 a share, he said the offer was in fact $6.75 a share. He also said Colazal could generate $53 million in revenue in 2003 and that Axcan’s bid undervalued the drug’s potential.

Laurence Terrisse-Rullea, an analyst at Desjardins Securities, told Reuters that the deal would be “complimentary” to Axan’s product line. But she said the deal as proposed was “expensive at first glance” based on the price reflecting almost six times Salix’s annual sales.

In a press release, Gosselin defended the move.

“This transaction fits perfectly with our proven strategy of growing our focused pipeline of products in gastroenterology through select acquisitions,” he said. “Salix’s currently marketed product complements our portfolio of products already marketed in the United States, and we believe that a combined company will be able to promote and sell products in the market much more efficiently. Our shareholders should see the positive effects of the transaction in the near term, following its close.”

Letter cites ‘a refusal to engage’

The letter to the Salix board reads as follows:

“As you are aware, we have expressed interest in pursuing a negotiated transaction with Salix numerous times over the past several years. In recent months, David W. Mims and I have made several attempts to discuss the possibility of a strategic transaction with representatives of Salix, and each time our efforts have been unsuccessful to the detriment of Salix’s stockholders. The recent cancellation of a proposed meeting and continuing refusal to engage in discussions leave us no choice but to go directly to Salix’s stockholders.

“Accordingly, we advise you that today Axcan commenced an all-cash tender offer to acquire all outstanding shares of Salix for a price of US$8.75 per share. This price represents a 40% premium over Salix’s latest thirty trading day average market price and a 47% premium over the company’s latest sixty trading day average.

“Salix’s recently amended shareholder rights plan, or ‘poison pill,’ effectively prevents consummation of our offer, unless redeemed or amended by Salix’s Board of Directors. If we do not have meaningful discussions leading to a negotiated acquisition agreement, and if the Salix Board does not redeem or amend the poison pill to permit the proposed transaction, we intend to nominate a slate of independent directors for election at Salix’s Annual Meeting scheduled for June 19, 2003.

“We have taken these steps reluctantly, but have no choice given the unproductive results of our earlier discussions and the timing limitations imposed by your annual meeting.

“We are resolute in pursuing this course, but continue to believe that a negotiated agreement is in the best interest of your stockholders. We strongly urge you to take the necessary steps to uphold your fiduciary duties on their behalf. Should there be any basis for us to talk, please contact me immediately.”