Valeant Pharmaceuticals International Inc.’s biggest acquisition, its $10.1 billion purchase of Salix Pharmaceuticals Ltd., makes a bet on winning regulatory approval for a potential blockbuster gastrointestinal drug.

Investors in Raleigh, North Carolina-based Salix will get $158 a share in cash, the companies said in a statement Sunday. The deal values Salix at about $14.5 billion including net debt, and will provide a “modest” addition to earnings this year, according to Valeant.

Valeant, which was thwarted last year in a long-running quest to buy Botox-maker Allergan Inc., is counting on Salix’s Xifaxan getting U.S. Food and Drug Administration approval by May for treating irritable bowel syndrome with diarrhea. Valeant is a serial acquirer, using an advantageous tax structure to make purchases and then cutting research and development costs to boost profits.

“We feel quite comfortable that this new indication will be approved,” Valeant Chief Executive Officer Mike Pearson said Monday during a call with investors. The company’s financial estimates for the deal depend on Xifaxan getting the additional approval eventually, though not necessarily by May, he said.

Shares of Valeant rose 15 percent to $198.75 at the close in New York, the biggest one-day gain since January 2011 and the stock’s highest-ever price. Salix shares fell 1.3 percent to $155.76. Salix has soared 52 percent since Nov. 28, following reports that the company was in talks to sell itself and its portfolio of drugs for ulcerative colitis and travelers’ diarrhea.

Apriso and Uceris, which treat inflammation of the colon, and Xifaxan, an antibiotic given to people with complications of liver disease, together made up 56 percent of Salix’s $382 million in second-quarter sales.

The Salix deal came together just three and a half weeks after Valeant was approached by bankers about Salix, Pearson said in a telephone interview Sunday. Valeant was focused on smaller transactions when the opportunity presented itself, he said. “You can never predict the timing of a larger deal.”

Valeant is still focused on small- to medium-sized acquisitions, and may consider a larger deal if one presents itself, Pearson said. “Our strategy has not changed.”

Combining the companies will save $500 million in costs within six months, Pearson said on the call with investors. The savings will come from cuts in Valeant as well as from Salix, he said.

“We’ve over-delivered in terms of cost synergies and expect we will do so again,” Pearson said. He said he expects the purchase to be minimally accretive this year, and to add a 20 percent boost to earnings per share in 2016.

The transaction is Valeant’s largest ever, according to data compiled by Bloomberg. Excluding Salix,Valeant had completed $19.2 billion of deals in the past five years, including the acquisition of eye-care company Bausch & Lomb Inc. in 2013.

Valeant also reported fourth-quarter net income that jumped to $534.9 million, or $1.56 a share, from $123.8 million, or 36 cents a share, a year earlier. Revenue climbed to $2.28 billion from $2.06 billion.

The results were “a touch higher” than the outlook that Valeant provided in December, Umer Raffat, an analyst at Evercore ISI, said in a note Sunday.

Salix was advised by CenterView Partners, JPMorgan Chase & Co. and law firm Cadwalader, Wickersham & Taft LLP. Valeant was advised by Deutsche Bank AG, HSBC Holdings Plc and law firm Sullivan & Cromwell LLP.

Valeant emerged this month with the lead offer for the assets of Dendreon Corp., a bankrupt developer of a drug for advanced prostate cancer.

Valeant has a sizable presence in Bridgewater, New Jersey, though it’s based in Canada in part because of lower corporate tax rates, Pearson has said.

Salix said last month that it will restate its results for 2013 and most of 2014 after the board conducted an accounting review of how inventory of top drugs built up with wholesalers. With that move, Salix put behind it the accounting issues that kept potential acquirers at bay last year, when it was on a handful of drugmakers’ shopping lists including Actavis Plc and Allergan. Shire Plc also was interested in Salix, according to two people with knowledge of the situation.

Allergan later backed away from a deal with Salix in part because due diligence revealed the accounting problems, according to a person with knowledge of the matter. Allergan was later acquired by Actavis in a $67 billion deal.


The per-share offer was fair given Salix’s inventory issues, a Department of Justice investigation, and the fact that Salix recently had to restate its results, Valeant’s Pearson said. “The underlying price of this company is much lower than it was on Friday when everyone thought this deal was being done,” he said.

Valeant is estimating that drawing down inventory levels will cost more than $500 million, Pearson said on the investor call. He said Salix had convinced wholesalers to overstock by giving large discounts on products, and that policy would now be reversed.

“We expect to work down the inventory to two months or less by the end of the year,” Pearson said Monday.

--With assistance from Moming Zhou, Cynthia Koons and David Welch in New York.

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