Unlikely Valeant (VRX) Will Lose Salix (SLXP) Deal - BMO Capital

BMO Capital analyst Alex Arfaei weighed in on Valeant Pharmaceuticals (NYSE: VRX) after Endo (NASDAQ: ENDP) submitted a competing $175/share offer for Salix (NASDAQ: SLXP), saying they doubt Valeant will lose the deal.

Arfaei commented, "We had assigned a 30% possibility of a higher bidder for Salix, but we continue to believe that there is a 70% probability that Valeant will end up buying Salix. Recall, Valeant’s $158 per share offer is all cash, and if needed, we believe that Valeant could raise its offer by either raising the cash component and/or issuing stock."

He continued,"For example, if Valeant were to increase its offer to $170 cash, we estimate that the deal would be roughly 19% accretive in 2016 and 24% accretive in 2017. If Valeant were to issue stock at $195 to increase its $158 per share cash offer and pay a total of $170 per share for Salix, we estimate that the deal would still be roughly 19% accretive in 2016 and 23% accretive in 2017. Given that Valeant’s offer will have a significantly greater cash component vs. Endo’s offer at only ~25% cash, we believe that if equal or close, Valeant’s offer will likely be more attractive to Salix shareholders. We also believe that Valeant can out compete Endo not only because Valeant can pay more cash, but also because Valeant has a lower tax rate (Endo’s 2015 tax rate guidance is 15-17% vs. Valeant at 5-6%). Recall, that Endo would also have to account for a $356mm break-up fee to Valeant, or roughly $5.50 per share."

Arfaei

Outperform price target of $234.00

For an analyst ratings summary and ratings history on Valeant Pharmaceuticals click here. For more ratings news on Valeant Pharmaceuticals click here.

Shares of Valeant Pharmaceuticals closed at $201.48 yesterday.

You May Also Be Interested In

• Chardan Assumes Rocket Pharmaceuticals (RCKT) at Buy
• ONEOK Inc (OKE) PT Raised to $95 at Scotiabank
• BofA Securities Downgrades PG&E Corporation (PCG) to Neutral, 'A comprehensive reform opportunity falls short'