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A Valeant recovery
July 2011
by Jeffrey Bouley  |  Email the author


MISSISSAUGA, Ontario—It wasn't that long ago, in April, that Valeant Pharmaceuticals International Inc. was engaged in a $5.7 billion hostile takeover attempt of Cephalon Inc. Then on May 2, it congratulated Teva Pharmaceutical Industries Ltd. for winning Cephalon instead, followed just a little over three weeks later by the announcement that it had entered into an agreement to acquire AB Sanitas for roughly $446 million.  
That Valeant found a new acquisition target quickly is of little surprise, given that J. Michael Pearson, chairman and CEO of Valeant, has clearly stated his company's goal of growing by mergers and acquisitions, and said when Cephalon was rebuffing its overtures that "we will be happy to move on to other opportunities" if the takeover attempt failed.  
Also, in the news release congratulating Teva and Cephalon on their deal, Pearson said: "As Cephalon stockholders ourselves with over a million shares owned, we will benefit from this transaction without participating further in the process. We will remain disciplined on our M&A strategy and will look to deploy our freed-up capital on other opportunities to create value for our shareholders."
Deploy that capital it did, and Valeant spent far less than the several billion it had earmarked for Cephalon. But what is interesting about that Sanitas purchase price is that it falls pretty much in the middle of the $300 million to $500 million range that Pearson told Bloomberg in May was his company's "sweet spot." He had also told the publication that Valeant had "many irons in the fire around the world" and, presumably, Sanitas was one of them.  
What Valeant gains for this "sweet spot" price is a publicly traded specialty pharmaceuticals company based in Kaunas, Lithuania, that boasts a broad branded generics product portfolio of just under 400 products in nine countries throughout Central Europe and Eastern Europe, primarily Poland, Russia and Lithuania.
According to Valeant, Sanitas has in-house development capabilities in dermatology, ophthalmology and hospital injectables and "a robust pipeline of internally developed and acquired dossiers." Annual revenues for Sanitas are expected to be more than $145 million in 2011, "with an approximate revenue growth rate in the low double digits over the coming years."
"The acquisition of Sanitas should provide Valeant with an exciting opportunity to expand our European branded generics product portfolio with dermatology and hospital injectable compounds that have a strong track record of growth and profitability," Pearson says. "With 80 percent of the Sanitas portfolio consisting of non-reimbursed products with limited exposure to government pricing pressures, Valeant will be in a key position to continue our expansion into Central and Eastern Europe."  
The major shareholders of Sanitas have agreed to sell Valeant 87.2 percent of the outstanding shares of Sanitas, with at least 82.6 percent of the outstanding shares required to be delivered at closing. After the acquiring this controlling block of shares, Valeant plans to initiate a mandatory tender offer to purchase the remaining minority interest.  
Subject to customary closing conditions, including various merger clearances—and assuming there is no material adverse change between now and then—the majority stake purchase is expected to close in the third quarter of 2011 and the mandatory tender offer is expected to close in the fourth quarter of 2011. Valeant expects the transaction will be immediately accretive.  
Valeant develops, manufactures and markets a broad range of pharmaceutical products, but primarily in the areas of neurology, dermatology and branded generics.
Code: E071106



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