Valeant eyes smaller deals to build on Salix, Dendreon purchases

(Reuters) - Valeant Pharmaceuticals International Inc plans to strike smaller deals to build on its acquisitions of Salix Pharmaceuticals Ltd and assets of Dendreon Corp, its chief executive said on Monday.

Laval, Quebec-based Valeant announced the $10.1 billion cash offer for Salix, known for its drug Xifaxan to treat irritable bowel syndrome, on Sunday.

Valeant shares were up nearly 14 percent at $196.65 in New York and C$247.54 in Toronto on Monday. Shares of Salix dipped 1.2 percent to $155.90.

Valeant’s largest-ever purchase ends a pause in major acquisitions by the deal-making company during its lengthy, failed pursuit last year of Allergan Inc.

“What it does do is expand the opportunities available to the company,” CEO Michael Pearson said on a conference call. “We now have two new important therapeutic areas (and) continue to increase the number of targets out there.”

Valeant will pay $158 per Salix share and is near completion of its $495 million asset purchase from bankrupt Dendreon, a cancer vaccine maker.

Cheap capital and Valeant’s low tax rate make the deal appealing and allow the company to build on its strength – reducing costs, said Peter Mann, portfolio manager of Gluskin Sheff + Associates, which owns Valeant shares.

“Allergan appears already forgotten,” he said.

Valeant will borrow to buy Salix, pushing its ratio of debt to 5.6 times earnings before interest, taxes, depreciation and amortization, from 3.5 times. The company aims to bring that ratio to below four times EBITDA by the second half of 2016.

Valeant had reduced long-term debt to $15.4 billion in 2014 from $17.6 billion.

Gautam Dhingra, chief executive of High Pointe Capital which owns Valeant shares, said potential concerns about greater leverage were offset by low borrowing costs.

“The one difference between this deal and some of the others is that this is more of a growth opportunity rather than a stable cash flow growth or cost-cutting opportunity” he said.

Last November, Salix said supply levels for Xifaxan and other drugs were higher than it had indicated, forcing it to slash its full-year earnings forecast.

Pearson said Valeant would reduce the five to nine months of Salix inventory to two months or less by the end of 2015, which will cut revenue by $500 million.

Valeant said it expects to close the deal, which includes a $355 million breakup fee plus expenses, in the second quarter.

Reporting by Rod Nickel in Winnipeg, Manitoba; editing by Jeffrey Benkoe and Matthew Lewis