Valeant Pharma raises bid for Salix

NEW YORK — Faced with the prospect of letting another deal slip through its fingers, Valeant Pharmaceuticals International substantially increased its bid for Salix Pharmaceuticals on Monday, putting a quick end to a bidding war with Endo International.

Valeant said it would now pay about $11bn, or $173 a share, for Salix, a maker of gastrointestinal drugs, up from its previously agreed-to offer of $158 a share.

The increase amounts to an additional $1bn for Salix shareholders, and the boards of both companies approved the revised deal at the weekend.

As part of the new agreement, the termination fee that would be payable by Salix to Valeant has been increased by $100m, to $456m. Shortly after the revised agreement was announced, Endo said it was withdrawing its $11.2bn proposal to acquire Salix.

Prevailing in the bidding war is a much-needed win for Valeant and its CEO, J Michael Pearson. For much of last year, Valeant engaged in an acrimonious effort to take over Allergan, the maker of Botox. Along the way, Allergan and analysts raised questions about Valeant’s business model, and its ability to successfully integrate acquisitions.

And though it has triumphed this time, Valeant must now come up with $11bn in cash.

To help finance its increased offer, Valeant will issue $1.45bn in new shares. Doing so will allow the company to pay for the deal without taking on more debt from banks, which could have damaged its credit rating.

But the increased offer is also stretching Valeant financially. Known for its relentless pace of acquisitions, Canada-based Valeant has taken on substantial debt to fuel its deals. Although it faltered last year with Allergan, those efforts allowed it to forge an important alliance with Pershing Square, the hedge fund run by William Ackman.

Mr Ackman took a roughly 5% stake in Valeant this year, saying he would be a passive investor, and was prepared to help the company finance a bid for Salix.

Based in Raleigh, North Carolina, Salix is poised to be acquired by a Canadian company with a substantially lower tax rate than many of its US peers.

Both Valeant and Endo are among the drug makers that struck so-called inversion deals in recent years, allowing them to reduce their tax bills while moving abroad.

Inversions fuelled a deal-making spurt in 2014 even with such deals largely outlawed by new rules issued by the Treasury Department.