Shares in Valeant Pharmaceuticals (NYSE: VRX) jumped 14 percent but Salix Pharmaceuticals (Nasdaq: SLXP) fell slightly on Monday once stock markets opened and reacted to Sunday’s announcement that Valeant is buying Salix in a deal valued at $14 billion.
Helping drive up Valeant shares was an endorsement from big hedge fund investor Paulson & Co. It also is the biggest single shareholder in Salix, which is based in Raleigh, at just over 9 percent of shares. Paulson owns shares in Valeant.
“Valeant gets rewarded with a high growth business at a reasonable price by acting quickly in this transitional period for Salix,” Paulson & Co. said in an emailed comment to Forbes. The company sees the deal as being “very accretive to Valeant.”
Wall Street analyst firm Cantor Fitzgerald also helped boost Valeant when it raised its target share price to $214 from $184, according to TheStreet.com.
“We maintain our ‘buy’ rating and raise our price target to incorporate our Salix accretion assumptions along with our interest expense estimates. Valeant expects to achieve cost synergies of greater than $500 million within six months without reducing the Salix specialty sales force or reimbursement teams,” Cantor Fitzgerald said, according to TheStreet.
Meanwhile, three law firms disclosed plans to review the Salix-Valeant agreement.
- “Levi & Korsinsky, LLP Commences an Investigation of the Board of Directors of Salix Pharmaceuticals, Ltd. in Connection with the Fairness of the Sale of the Company to Valeant Pharmaceuticals International, Inc.Business,” that firm said.
- “Wolf Popper LLP Investigates Claims That the Proposed Acquisition of Salix Pharmaceuticals, Ltd. May Not Be In the Best Interests of Its Investors,” Wolf Popper said,
- “Johnson & Weaver, LLP Investigates the Fairness of Price and Process in Proposed Sale of Salix Pharmaceuticals to Valeant Pharmaceuticals International,,” the firm announced.
Earlier, Salix disclosed that could have to pay as much as $400 million if its $14 billion deal to be acquired by Valeant falls through.
Salix, which employs some 550 people, says it will not seek another offer but if another comes along and Salix accepts it, Valeant would be paid a termination fee of $356 million plus related costs up to $50 million in what’s called a “breakup fee.”
The deal, announced Sunday and agreed to by the boards of both companies, calls for a price of $158 in cash for Salix shares.
WRAL TechWire coverage of Salix:
- Deal likely means more turmoil at Salix
- Salix agrees to $14 billion buyout
- Long-time CEO Logan retires
- Salix eyes possible $10B deal
That’s just below Friday’s close of $157.85.
In fact, Salix shares surged nearly 5 percent, of $7.11, as news swept Wall Street about a possible deal.
Other buys might see enough of an upside in Salix shares to make an offer. Just last September, Salix shares traded at nearly $173 per share as rumors circulated that Allergan would buy the North Raleigh company.
However, news broke about huge inventory problems at Salix and shares plunged nearly 50 percent to $91.47 in just one day.
Since then, Salix shares have rebounded by $65 a share. the company disclosed plans to resolve the inventory problem. It also has undergone changes in management with long-time CEO Carolyn Logan stepping down as of Jan. 30. The firm’s chief financial officer departed when the inventory news broke.
So is there another buyer?
Here’s what Salix said in a filing with the SEC early Monday:
“The Company has agreed not to solicit alternative acquisition proposals. However, the Company may, subject to the terms and conditions set forth in the Merger Agreement, furnish information to, and engage in discussions and negotiations with, a third party that makes an unsolicited acquisition proposal that the Company’s Board of Directors determines in good faith constitutes or could reasonably be expected to result in a superior proposal and after consultation with its outside counsel, the Company’s Board of Directors determines in good faith that failure to take such action would be inconsistent with its fiduciary duties to the Company’s stockholders under applicable law. Under certain circumstances and upon compliance with certain notice and other specified conditions set forth in the Merger Agreement, the Company may terminate the Merger Agreement to accept a superior proposal.
“The Merger Agreement contains certain termination rights for both Parent and the Company, including in the event that the offer is not consummated by August 20, 2015 and further provides that, upon termination of the Merger Agreement under certain circumstances relating to competing acquisition proposals, including if the Company terminates the Merger Agreement to accept a superior proposal, or where the Company’s Board of Directors changes its recommendation in favor of the transaction, the Company may be required to pay Parent a termination fee of $356,400,000 and reimburse the documented out-of-pocket expenses of Guarantor, Parent and Merger Sub in connection with the transaction up to a maximum of $50,000,000 in the aggregate. Each party also has rights to specific performance as set forth in the Merger Agreement. Guarantor has guaranteed the performance by Parent and Merger Sub of their obligations under the Merger Agreement.”