Why Valeant, Not Endo, Could Still Win The War For Salix

As reported on Wednesday, Endo International PLC ENDP has made a takeover bid for Salix Pharmaceuticals, Ltd. SLXP, even though Valeant Pharmaceuticals Intl Inc VRX already has an agreement to purchase the latter for roughly $10 billion. Sources familiar with the issue told WSJ Endo offered Salix $170-$175 per share in cash and Endo stock, above the $158 per share that Valeant agreed to pay for the company last month.

In response to Endo’s bid, Valeant sent a letter to Salix’s Board indicating that it would offer $175 per share for Salix in a stock and cash financed deal.

In a report issued Thursday, CRT Capital analyst Tim Chiang commented on the issue. He said the firm expects the Board to reviews Endo’s offer, but believes that “Valeant's $158/share all cash offer still remains the soundest bid currently.” This idea is based on:

1) “it being all cash with no contingencies vs. Endo's proposal which is mostly equity financed,”

2) “there being no risk for Salix shareholders that Endo shareholders reject the deal vs. Valeant's offer which does not require shareholder approval,”

3) “no risk to Salix shareholders with the upcoming Xifaxan PDUFA date (~May 27) for its IBS-D treatment indication.”

CRT Capital’s proforma analysis “suggests that Valeant's acquisition of Salix (at $158 per share in cash; factoring in a Q2 closing) would generate ~3% EPS accretion in 15, and ~19% EPS accretion in 16.”

Finally, the analyst looked into Valeant’s stock, which fell almost 4 percent since the market open on Wednesday. The firm sees the recent weakness as a buying opportunity, and rates the stock with a Buy rating and a $220 price target.