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Valeant to pay $2.6B for Medicis

by Laura Board | Published September 4, 2012 at 11:39 AM

Valeant Pharmaceuticals International Inc. on Monday, Sept. 3, rebounded decisively from last year's failed $5.7 billion pursuit of Cephalon Inc. with a $2.6 billion deal to take over Medicis Pharmaceutical Corp. and build its growing dermatology business.

Montreal-based Valeant will offer $44 per share for the maker of Solodyn acne treatment and the Dysport injection for frown lines. The price is a 39% premium to Medicis' Friday closing price.

The addition of Medicis will give Valeant's U.S. dermatology business pro forma 2012 sales of $1.7 billion, said Valeant, which will make Medicis' Scottsdale, Ariz., headquarters the center of its dermatology business. Valeant's existing U.S. dermatology business had sales of $568.3 million in 2011.

"The acquisition of Medicis represents a significant next step in our journey to become the leader in dermatology by strengthening Valeant's presence in acne, actinic keratosis, aesthetic injectables and anti-virals, among others," Valeant chairman and CEO J. Michael Pearson said in a statement.

Valeant said the Medicis purchase will yield cost synergies at an annual run rate of at least $225 million within six months of closing. The buyer said it has secured financing for 100% of the transaction value from JPMorgan Chase & Co.

The companies expect the deal to close in the first half of next year.

Medicis, led by Jonah Shacknai, was a rumored acquisition target of Valeant as far back as August 2011 after the sudden deaths of Shacknai's son and girlfriend in quick succession. The Canadian buyer has made more than 15 small and midsized acquisitions since losing Cephalon to a higher, $6.8 billion bid from Teva Pharmaceutical Industries Ltd. in May last year, but hadn't until now struck any big-ticket takeover deals.

Medicis last year earned net profit of $126.5 million on revenue of $721.1 million.

On announcing second-quarter results last month, Medicis cut an earlier forecast for 2012 revenue to $800 million to $834 million, down from $830 million to $862 million previously, and trimmed forecast non-GAAP earnings per share for 2012 to $2.25 to $2.65, down from $2.62 to $2.86.

Valeant posted 2011 revenue of $2.46 billion and net income of $159.6 million.

Valeant's current incarnation began with the late 2010 merger of Valeant, then of Aliso Viejo, Calif., with Biovail Corp., which was then Canada's largest pharmaceutical company, in a $3.2 billion deal.

JPMorgan Securities LLC advised Valeant on the Medicis purchase. Valeant had used Goldman, Sachs & Co. as adviser on the Cephalon bid, and Goldman had also advised Valeant alongside Jefferies & Co. on its merger with Biovail.

A Sullivan & Cromwell LLP team including Alison Ressler, Sarah Payne, Matthew Friestedt, Yvonne Quinn, Neal McKnight and Ronald Creamer Jr. and Skadden, Arps, Meagher & Flom LLP's Stephen Arcano and Robert Copen served as Valeant's legal counsel. Sullivan & Cromwell's Ressler led a team advising Valeant on its Cephalon bid and also advised the special committee of Biovail directors on the merger with Valeant.

Deutsche Bank Securities Inc.'s H. Michael Cohen, James Stynes and David Levin and Roberts Mitani LLC were financial advisers to Medicis, which turned to a Weil, Gotshal & Manges LLP team including Michael Aiello, Matthew Gilroy, Ann Malester, Steven Newborn, Steven Bernstein, Kenneth Heitner, Chayim Neubort, Jeffrey Osterman, Greg Danilow and Steven Margolis and a Latham & Watkins LLP team led by Charles Ruck, Wesley Holmes and Joshua Dubofsky for legal advice.

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