Valeant looks past Cephalon to other deals

TORONTO Tue May 3, 2011 5:52pm EDT

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TORONTO (Reuters) - Valeant Pharmaceuticals (VRX.TO), which dropped a $5.7 billion offer for Cephalon Inc CEPH.O earlier this week, is talking to potential takeover targets and will pursue other large deals, its chief executive said on Tuesday.

CEO Michael Pearson said the Canadian drugmaker was looking at acquisitions of all sizes and that Valeant had the financial firepower to do a deal bigger than that of Cephalon.

On Monday, Valeant pulled out of the race to buy Cephalon after Israel's Teva Pharmaceutical Industries Ltd (TEVA.TA) TEVA.O agreed to buy the U.S.-based drugmaker for $81.50 a share, topping Valeant's $73-a-share bid.

While disappointed, Pearson said he was glad it was over quickly and has moved on.

"We are in active discussions in our different geographies," Pearson told Reuters in an interview.

"Quite frankly, we were in discussions even when this Cephalon thing was going on. There was no guarantee it was going to happen and we understood that," he added.

The bid for Cephalon showed Valeant is going to be an aggressive player in the specialty pharmaceutical arena.

"Cephalon is not a unique asset. There are others out there that are consistent with our strategy," he said. "We're moving forward. We will find other strategic assets."

Mississauga, Ontario-based Valeant came into being through a complex deal in which Canada's Biovail acquired U.S.-based Valeant for $3.3 billion and assuming the target company's name. Pearson, the CEO of the old Valeant, took the reins of the new company.

Pearson has relied on acquisitions to boost growth, with Valeant acquiring 20 companies in the past three years.

Valeant investors have welcomed his strategy. Since the close of the Biovail deal, its shares have risen nearly 70 percent, giving it a market capitalization of about $15 billion.

Its deal strategy is seen as unique in the pharmaceutical world. The company typically buys companies that have late-stage drugs in development and strips research and development spending, so it can maximize savings and add to earnings.

Pearson, who said Valeant had the resources to top Teva's bid, said as the company's strengthening earnings and cash flows increased its ability to raise more financing and widened its net.

A Cephalon deal, which would have been the biggest in Valeant's history, could not have been possible a year ago, Pearson said.

"We felt very comfortable doing Cephalon. We could do a little bit more if we needed to," he said.

Several companies have been touted as potential acquisition candidates for Valeant. Shares pharmaceutical firms Forest Labs FRX.N, Medicis MRX.N, Endo (ENDP.O), Jazz (JAZZ.O) and Salix Pharmaceuticals (SLXP.O) rose on Monday on speculation that they would be Valeant's next target.

NEED FOR SPEED

Pearson's emphasis to do the deal quickly drew criticism in the Cephalon camp. Some have wondered if Valeant might have met with less resistance if it were not so aggressive about the timing.

"Speed is very important to us. It's a key part of our strategy," Pearson said. "We either get things done, or we don't. And we move on."

"Time is the enemy, in my mind," he said. "Speed has proven to be a real competitive advantage if you look at our history. We have moved quickly and we will continue to move quickly."

Valeant largely completed the integration of Biovail in six months.

Reflecting on the Cephalon bid, Pearson said he felt at the highest level the company did the right thing.

But he added while Valeant could have done many things differently, the biggest question was whether it had to make an unsolicited bid, the first time Valeant has gone that route.

"Our intent and our approach is to always do things friendly," Pearson said. "We'll spend some time thinking what we could have done differently that could have allowed us to remain friendly."

(Reporting by S. John Tilak; Editing by Frank McGurty)

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