U.S.-based specialty pharmaceutical company Endo Health Solutions Inc will buy Canadian peer Paladin Labs Inc to expand its presence in Canada and emerging markets, as generic competition for its top drugs squeeze sales.
The news sent Endo shares up as much as 33 percent, valuing Paladin - to be acquired in a cash and stock deal - at about $2 billion.
The deal, Endo's biggest acquisition since its $2.9 billion purchase of American Medical Systems in June 2011, will help Endo to add more products to its pain and women's health portfolio, as well as reduce its tax burden.
The complex deal structure will create a new Irish holding company, which will own both Endo and Paladin, to take advantage of Ireland's low tax rates.
"They (Endo) are getting good value for what they are paying for," Gabelli & Co analyst Kevin Kedra said.
"They are buying an asset that is going to be accretive and they are restructuring themselves, which is going to help their tax structure going forward."
Endo has been seeing its sales slide as its Lidoderm pain patch lost patent exclusivity and demand for its Opana painkiller fell due to mounting competition.
Endo said in June it will restructure the company to cut costs, divest some of its non-sore assets such as the urology business HealthTronics and look for strategic deals.
"Paladin Labs' stable and growing cash flows and strong Canadian franchise complement our existing portfolio and further diversify our pharmaceutical product mix and geographic reach," Endo Chief Executive Rajiv De Silva said in a statement.
The Canadian company markets pharmaceutical and biotechnology drugs that it acquires or licenses out from drugmakers. It was also developing a drug, named Impavido, for treating a rare parasitic disease.
CASH & STOCK DEAL
Paladin shareholders will receive 1.6331 shares of Endo and C$1.16 ($1.11) in cash, with around 98 percent of the purchase value made in stock.
Based on Monday's closings, the deal was valued at $72.38, a premium of 13 percent to Paladin's last close.
With Endo's shares rising to a life high of $58.23 on Tuesday, Paladin's stock was up 50 percent at C$95.50 ($91.42) on the Toronto Stock Exchange.
Paladin shareholders will also receive a single share of a newly created Canadian company called Knight Therapeutics Inc, which will own Impavido and be spun off at deal closing. Marketing approval for the drug is before U.S. regulators.
The transaction is expected to close in the first half of 2014 and will immediately add to Endo's adjusted earnings.
Shareholders representing about 34 percent of Paladin's outstanding shares have already agreed to vote in favor of the deal, Endo said.
The U.S. company has secured committed financing that will be used to refinance certain elements of its existing debt and the early buyback of its convertible notes due April 2015.
Deutsche Bank, Skadden Arps, Torys LLP and KPMG acted as advisers to Endo, while Credit Suisse, Davies Ward Phillips & Vineberg LLP, and EY advised Paladin.
($1 = 1.0447 Canadian dollars)
(Editing by Maju Samuel)