Salix Said in Talks to Sell to Actavis as Allergan Fades

Salix Pharmaceuticals Ltd. is in talks to sell itself to Actavis Plc, said people with knowledge of the matter, after it failed to reach a deal with Botox maker Allergan Inc.

Though no deal is imminent, an agreement between Salix and Actavis has become more likely in the past week, the people said, asking not to be identified discussing private information. Allergan’s effort to acquire Salix stalled in recent days over valuation concerns, two of the people said.

Salix, whose top selling drug is Xifaxan, a treatment for travelers’ diarrhea, today ended a $2.7 billion merger agreement with Italy’s Cosmo Pharmaceuticals SpA, blaming tougher U.S. rules for scrapping a plan to move overseas for lower taxes. The Raleigh, North Carolina-based company had a $9.6 billion market value at the close of regular trading yesterday.

The attempt at an Actavis-Salix pairing is the latest in a number of combinations that have been considered by drugmakers this year. Actavis, itself a potential target for Pfizer Inc., had also approached Allergan about a deal, people with knowledge of the matter said last month. For its part, Allergan is looking to fend off a hostile takeover by Valeant Pharmaceuticals International Inc.

Allergan’s Critics

Allergan, which held on-again, off-again talks with Salix since July, recently faced public criticism over those efforts from some of its largest shareholders. The talks with Salix stalled in part after Allergan’s shareholders reacted negatively to the idea, one of the people familiar with the situation said.

T. Rowe Price Group Inc., Allergan’s third-largest shareholder, said Sept. 26 that the drugmaker shouldn’t move forward with any acquisition, even all-cash deals that normally don’t require a vote, without shareholder approval. T. Rowe, Jackson Square Partners LP and Pentwater Capital Management LP, which collectively own about 9 percent of the company’s shares, according to data compiled by Bloomberg, all made public statements opposing an offer for Salix.

Other large Allergan shareholders have voiced their disapproval privately, one person said. Some shareholders have also expressed their support for an acquisition of Salix by Allergan, one of the people said.

Representatives for Actavis, Allergan and Salix didn’t respond to phone calls seeking comment. CNBC reported yesterday that Salix’s talks with Allergan had slowed and that the purchase of Cosmo Pharma is unlikely to proceed.

December Showdown

If Allergan doesn’t buy Salix or find another deal, the stage will be set for a showdown in December that could determine the company’s fate.

Allergan shareholders will vote Dec. 18 whether to keep the board in place or to elect new directors who are nominated by hedge fund Pershing Square Capital Management Ltd. and Valeant, which favor a sale to that company. Bill Ackman’s Pershing Square teamed up with Valeant to help drive the takeover.

Proxy advisory firm Institutional Shareholder Services Inc. said this week that Allergan should let shareholders vote on whether they support the company’s strategic plan or Valeant’s offer.

Other shareholders have been asked by Valeant and its Chief Executive Officer Michael Pearson to send letters to Allergan asking that any acquisition be put to a vote, one person said.

Allergan, based in Irvine, California, has asked its holders more than once to “prevent Valeant from taking control of Allergan at a price that does not appropriately reflect the underlying value of Allergan’s assets, operations and prospects.”

Allergan and Salix have come close to a deal twice, one of the people said. They could still decide to go back to the bargaining table to get something done.

Buying Salix would add its almost $10 billion in market value to Allergan’s $52.6 billion market value based on yesterday’s closing price, plus any premium the company paid.

Valeant has offered $54 billion in cash and stock, which Allergan has refused.

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