Allergan ‘not in talks to acquire Salix’

Allergan is not in active talks to acquire Salix Pharmaceuticals, people with knowledge of the matter said, though the drugmakers have discussed a deal.

Allergan, seeking to stave off a hostile bid from Valeant Pharmaceuticals International, approached Salix about buying the drugmaker in recent months, the people said.

With talks between the two sides now dormant, Allergan continues to explore other options, one of the people said.

Valeant teamed up with activist investor Bill Ackman’s Pershing Square Capital Management LP in April to make a $54bn cash and stock offer for Allergan, which the target has rebuffed. Valeant has raised its offer twice, recently to $72 in cash and 0.83 of its own shares for each Allergan share.

Buying a sizeable competitor could help Allergan defend itself against Valeant by making it a much more expensive target. Chief executive David Pyott said last month the company was seeking acquisitions and “has a lot of options.”

An Allergan acquisition of Salix, which has a market capitalisation of about $10bn, would force Valeant to borrow more money or offer more shares to make the deal happen. Valeant chief executive Michael Pearson said last month a deal could “force us to walk.”

“I don’t see Valeant buying Allergan if Allergan buys something significant. It would get too expensive” said Ronny Gal, an analyst with Sanford C Bernstein in New York.

Allergan, up 47% this year, ended trading yesterday at $163.13 a share, giving it a market value of about $50bn. Salix is up 75% this year.

The Wall Street Journal on August 19 reported that Allergan had approached Salix, pushing shares of the company and rival Jazz Pharmaceuticals Plc higher.

As part of the Cosmo deal, Salix agreed to acquire the patents of three gastrointestinal drugs from Cosmo for $2.7bn in stock. The deal, which has not closed, was structured to allow Salix to merge with the Irish unit of Cosmo and move its tax domicile here.

Acquiring an overseas rival using stock is called a tax inversion deal. It allows the acquiring company to use the target’s tax rate on overseas income and any cash brought back to the US. The US has a 35% corporate tax rate while Ireland’s is 12.5%.

(Bloomberg)