* Valeant on buying spree over past year
* Obagi shares jump 28 pct; Valeant up 4 pct
(Updates with share activity and analysts' comments)
By Esha Dey and Rod Nickel
March 20 Canada's Valeant Pharmaceuticals
International Inc said it would buy Obagi
Medical Products Inc for about $344 million to boost
its dermatology business, pushing ahead with a strategy of rapid
growth through acquisitions.
The offer price of $19.75 a share represents a 28 percent
premium to Obagi's Tuesday closing price on the Nasdaq.
Obagi's board has unanimously approved the deal, Valeant
said in a statement on Wednesday.
Shares of Obagi jumped 28 percent to $19.69, just shy of
Valeant's offer price. Valeant stock gained nearly 4 percent in
early trading in New York and Toronto, to $74.28 and C$76.14,
"It makes sense and I think that's why the stock is reacting
positively," said Tim Chiang, analyst at CRT Capital Group.
"Their main objective is to acquire the revenues, hopefully grow
the revenues and then cut costs."
Valeant, Canada's largest publicly-traded drugmaker, has
been building up its dermatology and aesthetics portfolio in the
United States over the past year.
It has acquired about a dozen smaller companies or assets,
including the $2.6 billion purchase of U.S.-based Medicis
Pharmaceuticals Corp in December that added Botox competitor
Dysport and other skincare drugs to its products.
Analyst Gary Nachman of Susquehanna said in a note to
clients that he spoke to Valeant management, who said that while
it thinks other companies have looked at Obagi, it was not
expecting a rival bid.
Valeant said it expects the transaction to close in the
first half of 2013 and immediately add to its cash earnings per
The deal is expected to save at least $40 million in annual
costs within six months of closing.
Chief Executive Michael Pearson told Reuters in February
that Valeant was in talks for more acquisitions and was also
open to discuss a potential "merger of equals."
The Montreal-based company has a market cap of about $21.7
billion. Obagi, which makes topical aesthetic products, had
revenue of about $120 million in 2012.
"Obagi is a leader in the physician dispensed market and
enjoys a strong brand perception among physicians. The addition
of their products will ... expand our market presence with
dermatologists and plastic surgeons," Pearson said on Wednesday.
Valeant's acquisitions have pushed its debt up 65 percent
to $10.8 billion, since the end of 2011. The company aims to
lower its debt level to below four times trailing EBITDA
(earnings before interest, taxes, depreciation and amortization)
this year from slightly over four times currently.
The Obagi purchase is small enough that it shouldn't have
much effect on Valeant's efforts to cut its debt, Chiang said.
(Reporting by Esha Dey, Bhaswati Mukhopadhyay and Vrinda
Manocha in Bangalore and Rod Nickel in Winnipeg, Manitoba;
Editing by Roshni Menon, Joyjeet Das and Nick Zieminski)