Endo Health Solutions Inc., a maker of painkillers facing declining revenue for its main treatments, agreed to buy Canadian drug company Paladin Labs Inc. for about $1.6 billion to expand in that country and emerging markets. Endo shares soared the most in 13 years.
The purchase, mostly through stock, values each Paladin Labs share at C$77, a 20 percent premium to yesterday’s closing price, Malvern, Pennsylvania-based Endo said in a statement today. The deal “immediately” will add to Endo’s 2014 adjusted earnings per share, it said.
The deal gives Endo access to the Canadian market, where Paladin has recorded average sales growth of 28 percent over the past five years, selling treatments for pain and allergy developed by itself or by other companies. Endo is facing declining revenue because of generic competition for drugs including the Lidoderm and Voltaren Gel painkillers.
“Relative to other specialty pharma M&A comparables, the deal looks somewhat expensive,” Jason Gerberry, an analyst with Leerink Swann, wrote in a research note today. “But the acquisition of Paladin is both immediately accretive and the NewCo shares will be held by an Irish holding company -- so tax benefits are likely greater than comp deals.”
Endo also reported third-quarter profit that topped analysts’ estimates and boosted its 2013 forecast. Earnings excluding one-time items were $1.34 a share, topping the $1.11 average of 19 estimates compiled by Bloomberg. Net income declined 26 percent to $40 million, or 33 cents.
The company forecast profit of as much as $4.75 a share, from a previous projection of up to $4.55.
Endo shares surged 28 percent to $55.87 at 11:04 a.m. New York time, after reaching $58.23 in their biggest intraday increase since the shares began trading in 2000. The stock gained 66 percent this year through yesterday. Paladin shares jumped to C$94.50.
Acquisitions “will continue to play a key role in maximizing our growth potential,” Endo Chief Executive Officer Rajiv De Silva said in the statement. Paladin’s leading products serve “growing drug markets” for treatments of attention deficit hyperactivity disorder, pain and allergies.
Both Endo and Paladin will be bought by a newly formed Irish holding company called New Endo, of which Endo Health shareholders will hold about 77.5 percent and Paladin investors 22.5 percent. New Endo will be led by Endo’s current management, while Paladin will be operated by its current managers and keep its head office in Montreal, Endo said.
The company anticipates its new structure will lower its tax rate to 20 percent over time, De Silva told analysts on a conference call today.
Deutsche Bank AG, Skadden Arps Slate Meagher & Flom LLP, Torys LLP, Houlihan Lokey and KPMG advised Endo, and Deutsche Bank and RBC Capital Markets LLC agreed to provide committed financing for the deal.
Paladin was advised by Credit Suisse Group AG, Davies Ward Phillips & Vineberg LLP and EY.