Valeant Pharmaceuticals International Inc. (VRX:US)’s $2.6 billion agreement to purchase Medicis Pharmaceutical Corp. recharges an acquisition strategy that had stumbled with last year’s failed bid for Cephalon Inc.
Valeant, Canada’s largest publicly traded drugmaker, said yesterday it will pay $44 in cash for each share of Scottsdale, Arizona-based Medicis, 39 percent more than the Aug. 31 closing price. Valeant rose 16 percent to $59.70 at 9:51 a.m. New York time, its biggest intraday gain since January 2011.
The deal would be the largest for Valeant since it was created in a 2010 merger of Canada’s Biovail Corp. and an Aliso Viejo, California-based predecessor. Valeant has made about 50 acquisitions of companies and assets since Michael Pearson took over as chief executive officer in 2008, said Jared Levy, a company spokesman. Medicis (MRX:US), with products such as Solodyn and Restylane, will help Valeant expand a lineup of wrinkle and skin-care products.
“It’s a business the CEO has talked about in the past that they’ve found very attractive with lower government threat to pay and generic competition,” Neil Maruoka, an analyst with Canaccord in Toronto, said in a phone interview.
The transaction will close in the first half of 2013, Montreal-based Valeant said in a statement. The company still has “ample flexibility to pursue small tuck-in acquisitions as they arise,” Pearson said on a conference call today.
Investors are interested in the stock because of the aggressive acquisition strategy, Maruoka said. Valeant shares have doubled since the Biovail merger in September 2010, outpacing the 23 percent increase in the Standard & Poor’s 500 Index and a 10 percent gain in the NYSE Composite Index. Medicis fell (MRX:US) 5.1 percent this year through August.
Medicis shares rose 38 percent to $43.62, their largest intraday increase since March 2009.
“The acquisition of Medicis represents a significant next step in our journey to become the leader in dermatology by strengthening Valeant’s presence in acne, actinic keratosis, aesthetic injectables and anti-virals, among others,” Pearson said in the statement.
Valeant’s strategy is to mix larger deals with smaller ones, Pearson said on a May conference call, focusing on ophthalmology and dermatology. Valeant had focused on treatments for the central nervous system and skin diseases.
An attempt to expand last year with a $5.7 billion offer for drugmaker Cephalon failed after Petach Tikva, Israel-based Teva Pharmaceutical Industries Ltd. (TEVA) topped the offer with a more than $6 billion overture.
Valeant’s most recent successful purchase of a company was OraPharma Inc., a maker of specialty oral health products, in June for $312 million, from private-equity company Water Street Healthcare Partners.
The agreement yesterday values Medicis at about 12 times the most recent 12 months’ earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg, compared with the median 14 times Ebitda in eight other recent pharmaceuticals takeovers. Medicis had about $721 million in revenue last year, while Valeant reported $2.5 billion in sales, according to data compiled by Bloomberg.
The acquisition is subject to conditions that include approval by Medicis stockholders and expiration of any applicable regulatory waiting period. Valeant said it expects the acquisition, once completed, to immediately add to cash earnings per share.
JPMorgan Chase & Co. (JPM:US) advised Valeant, and Deutsche Bank AG and Roberts Mitani LLC were Medicis’s financial advisers. Valeant used the law firms Sullivan & Cromwell LLP and Skadden Arps, and Medicis used Weil Gotshal & Manges LLP and Latham & Watkins LLP.
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