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Valeant Targeting ‘Multiple’ Buys After Teva Grabs Cephalon

Valeant Pharmaceuticals International Inc. (VRX) is in talks with “multiple” potential acquisition targets after it was thwarted in an effort to take over Cephalon Inc. (CEPH), Chief Executive Officer Michael Pearson said.

“We have many irons in the fire around the world,” Pearson said today in a telephone interview. “We are looking to pay fair prices for assets.”

Valeant yesterday dropped its $73-a-share bid for Cephalon, first made on March 29, when Petah Tikva, Israel-based Teva Pharmaceuticals Industries Ltd. agreed to buy the drugmaker for $81.50 a share, or a value of $6.2 billion. The Mississauga, Ontario-based company has lost a number of other acquisitions because it didn’t want to overpay, Pearson said. Most of the deals Valeant is considering are for closely held companies, Pearson said.

“Three hundred million to $500 million is our sweet spot,” Pearson said. While Valeant’s focus is on closely held companies, “we also keep our eyes open for public companies. We are not going to rush into things. We are going to be disciplined on the price.”

If the right deal came along, “we could go a little higher” than the $5.7 billion Valeant offered to acquire Cephalon, Pearson said.

Pearson said the company has made 24 acquisitions in the past 3 1/2 years. When Valeant combined with Biovail Corp. in September, Pearson cut about 25 percent of the workforce and sliced research spending.

Under Pressure

Pearson will be under pressure from investors to keep bringing new deals to fruition, said Gary Nachman, an analyst at Susquehanna International Group in New York, which owns shares of Valeant, Cephalon and Teva.

Valeant’s stock increased 19 percent from the day before Pearson’s initial bid for Cephalon through the close April 29, the last trading day before Teva announced its purchase. The shares declined $1.28, or 2.6 percent, to $48.30 at 4:02 p.m. today in New York Stock Exchange composite trading.

The share rise came because investors liked Pearson’s choice of targets, Nachman said.

“He’s getting credit for being even more aggressive than people thought he was going to be,” Nachman said in a telephone interview. “He’s said all along that there are a lot of other companies he could look at. There’s continued momentum in the M&A thesis in this space.”

Potential Targets

Jazz Pharmaceuticals Inc. (JAZZ), the Palo Alto, California-based maker of treatments for neurological and psychiatric conditions, and Medicis Pharmaceutical Corp. (MRX), which has a dermatology business that would complement Valeant’s products, are among the companies that would fit Pearson’s strategy of stripping out expenses by cutting staff and reducing tax rates, Nachman said.

Salix Pharmaceuticals Ltd., which focuses on treatments for gastrointestinal diseases, may also be a target, he said. Medicis is based in Scottsdale, Arizona, and Salix is in Morrisville, North Carolina.

Telephone messages left for Jazz spokeswoman Ami Knoefler, Medicis spokeswoman Kara Stancell and Salix spokesman G. Michael Freeman weren’t immediately returned.

“It doesn’t have to be the size of Cephalon, but he’s committed to doing deals,” Nachman said.

Cephalon investors said Valeant’s bid undervalued the company and Teva recognized the potential of the experimental drugs under development, said David Maris, an analyst with CLSA in New York.

“Most of the Cephalon shareholders that I’ve spoken to like the pipeline,” Maris said in a telephone interview yesterday. “If you want to see the pipeline come to fruition you want a company that’s going to continue to invest in the pipeline.”

Valeant takes a more “pillage-the-pipeline approach” and “would sell off almost all the assets,” he said

To contact the reporters on this story: Robert Langreth in New York at rlangreth@bloomberg.net; Rob Waters in San Francisco at rwaters5@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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