Why Valeant Pharmaceuticals Int'l Inc.'s Shares Took Off Today

The serial pharmaceutical acquirer just closed its biggest deal to date.

Alex Planes
Alex Planes
Feb 23, 2015 at 12:42PM
Health Care

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What's happening?
Shares of Valeant Pharmaceuticals (NYSE:BHC) have leapt 13% higher today after the drug and device maker announced its acquisition of gastrointestinal market player Salix Pharmaceuticals (UNKNOWN:SLXP.DL) for $158 per share.

Why it's happening
Investors are clearly excited about the excellent bargain Valeant struck for Salix, as the purchase price is a mere $2 per share above Salix's current price after a slight drop in shares today. The all-cash deal values Salix at a $4.5 billion discount to its enterprise value (including debt) of $14.5 billion, according to Valeant's SEC filing, and the deal is expected to achieve a $500 million annual run rate in cost synergies within the first 6 months.

The buyout is projected to boost Valeant's earnings per share by more than 20% by the end of 2016, based largely on the likelihood of Salix's potential irritable bowel syndrome blockbuster Xifaxan gaining FDA clearance. Valeant expects this drug to produce $900 million in revenue this year, while none of the five other drugs in Salix's stable is forecast to reach sales of more than $200 million in 2015.