In a bitter fight for the acquisition of Salix Pharmaceuticals, Valeant Pharmaceuticals Intl. Inc. (NYSE:VRX) offered to increase its bid amount for the acquisition of Salix Pharmaceuticals. This was in an effort to ward of the effort of Endo Pharmaceuticals to acquire the same company. Valeant Pharmaceuticals is a giant Canadian company that has mostly built its empire on mergers and acquisitions rather than getting into their own R&D.
The changing scenario
Valeant Pharmaceuticals Intl. Inc. (NYSE:VRX) had earlier offered &10.1 billion for the takeover of Salix, however, Endo increased the bid at the last moment to $172.5 per share, which Valeant quickly countered with a bid of $173, raising the t6otal amount to $11.1 billion. Irrespective of this surprise move, the Valeant deal is expected to go through on account of launching a bond issue of $4.15 billion with a term loan in place. Initially, the increase in offer by Endo caught most of the bankers of Valeant on the wrong foot. But, they stood their ground and announced that the deal would go through in Valeant’s favour.
There was an important condition mentioned by one of the bankers concerned with the deal. It stated that the amount that would be received from the sale of the issue would be kept in an escrow account, besides; the bonds would be redeemable at par in case the deal did not go through. The only damage to Valeant would be the interest costs involved in going through, with this deal.
The view of the market
Most of the financial analysts were of the common opinion that the offer made by Valeant was better than Endo’s deal and had a better chance of being finalized with Salix. The important factor that rules in favour of Valeant is that their offer is an all cash deal, whereas, the offer made by Endo would involve just 25% cash and the rest in the form of equity.
On the other hand, Salix will stand to lose $356.4 million if it backs out of this contract. It is therefore unlikely that this deal will fall through.