* Merz's bid at an 11 pct premium to Valeant's offer
* Merz says has necessary cash to fund the deal
* Obagi shares rise beyond Merz's offer
By Rod Nickel and Esha Dey
April 2 Neurological and dermatology drugs maker
Merz Pharma Group offered to buy cosmetic products maker Obagi
Medical Products Inc for $383.5 million, topping a bid
by Canada's Valeant Pharmaceuticals International Inc
Merz's $22-per-share bid represents a premium of 11 percent
to Valeant's offer of $19.75.
Shares of Obagi, which makes skin care products to treat
signs of aging, acne and sun damage, were trading above Merz's
offer price at $22.91 at midday, suggesting that some investors
expect a bidding war.
Analysts ruled out the possibility, saying the offer was
fairly valued. "I thought that (Valeant's) $19.75 was also a
good offer for Obagi given that it is a company that is growing
at about 7 percent, and it is kind of an old product line,"
Stifel Nicolaus & Co analyst Annabel Samimy said.
Germany-based Merz, which makes prescription and
over-the-counter treatments for neurological and metabolic
disorders and dermatology, called Obagi a "natural fit" as it
would help it diversify its dermatology portfolio and expand its
The market for cosmetic treatments is recovering after years
of slow growth during the economic downturn that forced people
to cut down on discretionary spending.
In November, Allergan Inc, the maker of anti-wrinkle
drug Botox, acquired privately held SkinMedica for its topical
"Obagi's physician dispensed aesthetic and therapeutic skin
care products, like Nu-derm and Obagi-C Rx, appear to have
become a sought-after franchise following Allergan's acquisition
of SkinMedica," Samimy said.
Valeant, Canada's largest publicly-traded drugmaker, too has
been building up its dermatology and aesthetics portfolio in the
United States over the past year. It acquired Medicis
Pharmaceuticals in December, adding Botox competitor Dysport and
other skincare drugs to its line up.
However, Samimy does not expect the Canadian company to
start a bidding war over Obagi. "Although Valeant is known for
its aggressive M&A appetite, there is a precedent for their
desire to stay away from bidding wars."
Last year, Valeant walked away from its offer to buy Ista
Pharmaceuticals Inc, which was finally bought by Bausch & Lomb
Inc. In 2011, Teva Pharmaceutical Industries Ltd
outbid Valeant to take over Cephalon Inc.
Privately held Merz was already engaged in discussions with
Obagi regarding a potential transaction, when Obagi and Valeant
announced their deal on March 20, the German drugmaker said.
Merz said it remained "resolute in acquiring" Obagi, and
that it had the necessary cash to fund the deal. Merz also said
it is prepared to move forward immediately to complete the deal.
In a separate statement, Obagi said it would evaluate Merz's
Valeant declined to comment.
Shares of Obagi were up 16 percent in morning trade on the