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Valeant steps into Afexa's hostile situation

by Ben Fidler | Published August 31, 2011 at 12:04 PM

Rather than let shareholders ruminate on a hostile bid from Paladin Labs Inc., Afexa Life Sciences Inc. has found a better offer on its own.

Afexa announced on Tuesday that it has signed a deal to be acquired by a subsidiary of Mississauga, Ontario-based pharma giant Valeant Pharmaceuticals International Inc. in a transaction that values the company at C$76 million ($78 million). The announcement comes just three weeks after Paladin, frustrated by resistance from Afexa management after buyout talks fizzled, launched a 55 cents per share bid for Afexa that values the company at C$50 million.

Afexa felt that Paladin's bid significantly undervalued its business and responded by conducting its own buyer search. It didn't take long for Afexa to find a willing suitor in Valeant, a much larger company than Paladin -- the acquisitive Valeant has a market capitalization of $13.23 billion, compared to that of $733.98 million for Paladin.

Valeant's offer, made through subsidiary 1625907 Alberta Ltd., represents a 29% premium to the cash consideration in Paladin's bid, or a 49% premium to the offer's share consideration alternative of 0.013 of a Paladin share. It also represents a 30% premium to Afexa's 30-trading-day volume-weighted average closing price on the Toronto Stock Exchange and a 49% premium over the closing price the day prior to Paladin's hostile bid.

Valeant's bid, which includes a 30-day go-shop period to search for better offers, ends on Sept. 29, after which time a no-shop restriction will kick in that bars it from discussions with parties that haven't already posted an offer. Valeant will have the right to match any competing bids and will get a $3.75 million termination fee if Afexa were to choose a different suitor.

Afexa's board is in full support of the Valeant deal.

Edmonton, Alberta-based Afexa is a life-science company best known for Cold-FX, Canada's best-selling over-the-counter cold and flu remedy. The company had C$39.1 million in annual revenue for the fiscal year ending March 31, 2010, but it posted an C$830,000 net loss over that span.

Paladin bought a 14.94% stake in Afexa on July 15 and immediately approached Afexa regarding a transaction. The two discussed several strategic alternatives under an exclusivity and standstill agreement, but by the time the window for the agreement closed on Aug. 5, no deal had been reached, and Paladin believed there was little chance it could complete one any time soon. As a result, the Montreal drugmaker decided to take its bid to Afexa's shareholders.

Valeant, meanwhile, has been on an acquisition spree in 2011. Even though its hostile $5.7 billion offer for Cephalon Inc. was topped when the branded pharmaceuticals maker accepted a $6.8 billion bid from Teva Pharmaceutical Industries Ltd., the company, undeterred, has since made three purchases. On May 24, it paid €314 million ($447 million) for Lithuanian drugmaker Sanitas AB. Two months later, it made two acquisitions: first, it paid $425 million for Sanofi-Aventis SA's dermatology business, Dermik Laboratories Inc., on July 11, and just four days later, it struck a deal to acquire the Ortho Dermatologics division of Janssen Pharmaceuticals Inc. for $345 million. Even following the Ortho deal, Valeant chairman and CEO J. Michael Pearson hinted that more deals were likely to come. The company, for example, has been rumored to have approached both Medicis Pharmaceuticals Corp. and Meda AB about potential buyouts.

Fraser Milner Casgrain LLP is Afexa's legal counsel, while Osler, Hoskin & Harcourt LLP is representing a special committee that was set up to review Paladin's bid. Scotia Capital Inc. is Afexa's financial adviser.

Stikeman Elliott LLP represents Valeant.

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Valeant steps into Afexa's hostile situation

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