By Maureen Farrell And Liz Hoffman
In bidding wars like the one that has developed over Salix
Pharmaceuticals Ltd., whoever offers the most usually wins.
Determining who's the high bidder in this case may be easier said
than done, however.
Endo International PLC on Wednesday swooped in with a
$175-a-share takeover offer for Salix, seeking to upend the
company's $158-a-share previously agreed deal to be bought by
Valeant Pharmaceuticals International Inc.
While Endo's offer was 11% higher than Valeant's, there is a
crucial difference that complicates comparisons between the two.
About 75% of Endo's bid is in stock, while Valeant's is all-cash.
The means the value of Endo's offer will fluctuate as its stock
moves, while Valeant's remains fixed--until and unless it is
raised.
So far, that seems to have worked in Endo's favor. A 3% bump in
the Irish company's stock Thursday boosted the value of its offer
to about $177 a share.
It is perhaps no accident that $175 is the price Endo chose for
its topping bid. That is the share price Allergan Inc. indicated
last fall it was willing to pay for Salix when the two companies
were in talks to combine. Salix asked for more, Allergan balked,
and Salix later was forced to accept $17 a share less from Valeant.
Taking the latest Endo bid would let Salix's board get back to
$175--and possibly higher.
The fact that Endo's offer has a big stock component cuts both
ways, of course, as any declines in its share price would eat into
its offer.
Still, investors are betting that Valeant will need to raise its
bid if it wants to hold on to the deal. Salix shares closed at just
over $170 apiece Thursday, indicating investors see a deal with
Valeant at $158 as a remote possibility now.
Valeant will surely be watching Endo's stock price closely as it
decides on its next move.
One thing working in the Canadian company's favor is its sheer
size: Valeant has a market value of $64 billion, more than four
times that of Endo. Evercore ISI analyst Umer Raffat reckons that
Valeant can match Endo's bid and "make the math work financially."
Valeant could also add stock to its offer, of course.
To be sure, price isn't the only consideration; certainty of
closing is important, too. Unlike Valeant's bid, Endo's would
require shareholder votes at both companies--a risk factor Salix
will no doubt weigh in deliberations.
Write to Maureen Farrell at maureen.farrell@wsj.com and Liz
Hoffman at liz.hoffman@wsj.com
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