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Shares of Valeant Pharmaceuticals (NYSE:VRX) have leapt 13% higher today after the drug and device maker announced its acquisition of gastrointestinal market player Salix Pharmaceuticals (NASDAQ:SLXP) 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.
Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.