Valeant, Canada's Biovail to Combine in Stock Deal
Biovail's Headquarters
Biovail/Bloomberg
Source: Biovail/Bloomberg
William Wells, chief executive officer of Biovail Corp. Photographer: Norm Betts/Bloomberg
Biovail Corp., Canada’s largest publicly traded drugmaker, will merge with Valeant Pharmaceuticals International, creating a company with annual sales of $1.75 billion.
Valeant shareholders will receive a one-time cash dividend of $16.77 a share before the deal closes, plus Biovail stock valued at $29.69 a share at closing, the companies said today in a statement. Biovail holders will own about 50.5 percent of the new company and holders of Aliso Viejo, California-based Valeant will have 49.5 percent, the companies said.
The combined businesses will focus on treatments for central nervous system illnesses and skin ailments, the Canadian market, and branded generic medicines in developing countries, according to the statement. The transaction will add to per- share earnings within 12 months after the deal closes, and will yield at least $175 million in annual cost savings in the second year, Biovail and Valeant said.
In addition to creating a more-diversified company, the new business “will also benefit from limited patent exposure,” said Biovail Chief Executive Officer Bill Wells on a conference call today. “This generates strong cash flows that will be used to support future growth and strengthen the combined company’s balance sheet.”
Job Cuts
Job cuts from combining the companies may total 15 to 20 percent of all positions, J. Michael Pearson, chairman and CEO of Valeant, on the call. Biovail had 1,291 employees as of Dec. 31 and Valeant had 3,100 employees, according to regulatory filings. Valeant spokeswoman Laurie Little and Biovail spokesman Nelson Isabel weren’t immediately available to comment on the size of the combined workforce.
Valeant rose $1.03, or 2.3 percent, to $46.90 at 4:02 p.m. in New York Stock Exchange composite trading, giving the company a market value of $3.55 billion. Biovail rose $2.07, or 14 percent, to $16.67, valuing the company at $2.6 billion. The gain is the stock’s biggest since September 2005. Valeant holders will get 1.7809 shares of Biovail for each Valeant share.
The new company’s headquarters will be in Mississauga, Ontario, where Biovail is based, with listings on both the Toronto and New York stock exchanges. The company will keep Biovail’s main operating subsidiary in Barbados.
End of Year
The deal probably will close by the end of the year, the companies said. After the merger, the combined business, to be called Valeant Pharmaceuticals International Inc., will pay a $1-a-share dividend to all stockholders, after which the new company won’t pay dividends, according to the statement.
“With Biovail’s favorable tax structure and Valeant’s international reach, this deal would create a specialty pharmaceutical company with broad global reach (operations in the Americas, Europe and Australia), combined revenues of close to $1.8 billion annually, and limited patent exposure,” said Chris Schott, a JPMorgan Chase & Co. analyst, in a research note today. The firm rates Biovail shares “overweight.”
Both companies’ founders, Eugene Melnyk of Biovail and Milan Panic of Valeant, departed in the past decade amid fights over board control.
Melnyk said in March he had sold “substantially all” of his stock in the company. Melnyk, the owner of the Ottawa Senators of the National Hockey League, resigned from Biovail in June 2007 and lost a vote to install his own board nominees in 2008. The company, founded in the late 1980s, has marketing rights to the Wellbutrin XL antidepressant and also sells GlaxoSmithKline Plc’s Zovirax herpes drug.
Name Change
Valeant, which changed its name from ICN Pharmaceuticals Inc. in 2003, has done 15 acquisitions since 2008 to add new medicines, mostly in dermatology, according to its website. The company discovered ribavirin, a drug used to treat respiratory infection and hepatitis C. Panic stepped down as chairman and chief executive in 2002 after losing a proxy fight with dissident shareholders. He served as prime minister of his native Yugoslavia from 1992 to 1993.
Pearson will be CEO of the merged company, residing in Barbados, the companies said. Wells will be non-executive chairman, they said.
Goldman, Sachs & Co., Morgan Stanley and Jefferies & Co. have agreed to provide a $2.8 billion loan facility to finance the deal. Valeant’s existing 7.625 percent and 8.375 percent senior unsecured notes will be refinanced, the companies said.
Goldman and Jefferies served as Valeant’s financial advisers, while Skadden, Arps, Slate, Meagher & Flom LLP and Ogilvy Renault LLP provided legal advice. Biovail’s advisers were Morgan Stanley and two law firms, Cravath, Swaine & Moore LLP and Blake, Cassels & Graydon LLP.
Had the companies been combined on March 31, revenue growth for the previous year would have been above 10 percent, they said. Cash flow from operations in the year ended in March would have been $575 million had the companies been combined then, they said.
To contact the reporters responsible for this story: Phil Serafino in Paris at pserafino@bloomberg.net
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