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Company complements are more than skin deep
MONTREAL, Canada—In its ongoing quest for further growth and a bigger stake in the dermatology market, Valeant Pharmaceuticals International Inc. has announced the signing of a definitive agreement with Medicis Pharmaceutical Corp., under which Valeant will acquire all outstanding shares of Medicis' common stock for $44 per share in cash, for an aggregate total of $2.6 billion.
The offer price represented a 39-percent premium to the closing price on Medicis' stock on Aug. 31, the last trading day before news of the deal was made public, and a 31-percent premium to the company's three-month average trading price. Both companies' boards of directors have approved the transaction, which is expected to close in the first half of 2013.
"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 antivirals, among others," J. Michael Pearson, chairman and CEO of Valeant, said in a press release. "Medicis' highly complementary portfolio of leading branded products and promising pipeline is a solid strategic fit, and we look forward to leveraging Medicis' well-known and respected name in dermatology to drive long-term growth."
Scottsdale, Ariz.-based Medicis specializes in dermatological and aesthetic products, and it has seen fairly steady growth for the past few years. Medicis reported revenues of approximately $721.1 million in 2011, with a gross profit margin of roughly 90.7 percent and a non-GAAP cash flow from continuing operations of approximately $218 million. The company's portfolio includes prescription brands such as Solodyn, Restylane, Perlane, Ziana, Dysport and Zyclara, for issues such as acne, wrinkles/frown lines and actinic keratoses.
"Our board of directors believes this compelling all-cash transaction demonstrates the value our employees have created and the strength of our brand in the specialty pharmaceutical market," Jonah Shacknai, chairman and CEO of Medicis, said in a press release. "We look forward to combining our portfolio of products with Valeant, and we are confident that the combined portfolio under the Medicis name will be well positioned to capitalize on meaningful opportunities in the growing dermatology and aesthetics markets."
The acquisition is subject to customary closing conditions, including approval from Medicis' shareholders. Once complete, Valeant expects the transaction to be immediately accretive to its cash earnings per share and to result in cost synergies at an annual rate of at least $225 million within six months of the close of the deal. The combined company's pro forma net revenue in terms of dermatology and aesthetics businesses for 2012 is expected to total more than $1.7 billion in the United States.
Laurie Little, vice president of investor relations at Valeant, says the company started having conversations with Medicis regarding a possible acquisition more than a year ago, but the talks did not progress until this fall. She adds that the companies' portfolios are very complementary.
"Where we have a big emphasis, we have quite a few products on the topical side for acne, they have the oral side … again, I think it's just that the product portfolios are very complementary in nature, so they make a lot of good sense to put together," says Little.
The acquisition was a good fit for Valeant, she adds, as "here in the U.S., we have a very strong dermatology focus … we've been pretty vocal about being one of the largest dermatology players."
Little says the combined dermatology operations will be located in Scottsdale, with a press release noting that the company will operate under the name Medicis, a division of Valeant. Dermatology research and development operations will be located in Laval, Quebec; Scottsdale; and Petaluma, Calif., with corporate supports functions located primarily in New Jersey.
"Obviously, I think that's a pretty clear message that we definitely value their expertise and experience in the marketplace and obviously want to retain that," says Little of the plans to keep dermatology operations in Arizona. "Their sales force is highly rated by dermatologists, so all those hopefully are great signs that we definitely want some Medicis folks to remain."
In an analyst note, Zacks Equity Research reported that they have "a positive take on Valeant's acquisition of Medicis. We believe that Medicis' products will complement Valeant's portfolio … Post-acquisition, we believe that Valeant will be in a position to leverage Medicis' strong presence in the dermatology market to drive growth in the long run."