Salix Pharma To Buy Santarus In $2.6 Billion Deal; Q4 Adj Profit Tops View

(RTTNews) - Pharmaceutical products and medical devices company Salix Pharmaceuticals, Ltd. (SLXP) agreed to acquire specialty biopharmaceutical company Santarus, Inc. (SNTS) for $32.00 per share in an all-cash deal valued at about $2.6 billion, without interest. The deal, which has the unanimous approval of the boards of directors of both companies, is expected to close in the first quarter of 2014.

"We are extremely pleased with the Santarus acquisition, which is transformative for Salix both commercially and financially, fulfilling many of our strategic needs while providing immediate and significant accretion in 2014 and beyond," Salix President and CEO Carolyn Logan said in a statement.

The offer price represents an about 36 percent premium over Santarus' closing price of $23.53 per share on Wednesday. Salix said it intends to fund the deal with a combination of about $800 million cash on hand as well as $1.95 billion in committed financing and additional $150 million revolving credit facility from Jefferies Finance LLC.

The deal is expected to be immediately and significantly accretive in 2014, with strong growth and the realization of additional synergies expected to result in greater earnings per share accretion in 2015. The deal is also expected to generate strong EBITDA and cash from operations that will lead to the rapid debt repayment.

For Salix, the deal will boost its presence in the gastroenterology market and cement its position as the largest U.S. Gastroenterology-focused specialty pharmaceutical company. It will also enable Salix to leverage Santarus' experienced specialty sales force immediately to gain revenue synergies from Salix's existing products, while continuing to grow Santarus' products.

The deal will also create a third sales force in gastroenterology and hepatology that will allow key Gastrointestinal (GI) products to have increased promotional exposure, and increases commercial presence in Gastroenterology, Hepatology and Colorectal Surgery.

The combined company is expected to have a leading position with a strong portfolio of 22 marketed products, with estimated 2013 proforma total product revenues of $1.35 billion. It is also expected to generate earnings of about $3.85 per share, and adjusted earnings of about $5.00 per share in 2014.

The closure of the deal is subject to a minimum tendering of at least a majority of the outstanding shares of Santarus common stock into the offer. However, the tender offer is not subject to a financing condition. The Board of Directors of Santarus unanimously recommends that Santarus shareholders tender their shares in the tender offer.

Certain directors and officers of Santarus, who beneficially owned or have options to acquire shares of Santarus' common stock equal to about 12 percent of Santarus have agreed to tender their shares into the tender offer.

Separately, Raleigh, North Carolina-based Salix announced results for the third quarter, reporting net income of $47.33 million or $0.71 per share, sharply higher than $16.54 million or $0.26 per share last year. Excluding items, adjusted net income was $59.8 million or $0.89 per share, compared to $48.2 million or $0.77 per share a year ago.

On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $0.86 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net product revenue increased 29 percent to $238.18 million from $185.13 million, but missed fourteen Wall Street analysts' consensus estimate of $239.70 million by a whisker.

Xifaxan revenue for the quarter grew 20 percent to $165.9 million, and Apriso revenue soared 93 percent to $38.1 million from last year. Xifaxan 550 mg prescriptions grew 24 percent, Apriso prescriptions surged 53 percent, and Relistor prescriptions improved 28 percent from a year ago.

Looking ahead to the fourth quarter, Salix expects earnings of $0.90 per share on total quarterly company product revenues of about $243.8 million. Analysts expect earnings of $0.99 per share on revenues of $249.08 million for the quarter.

For fiscal 2013, the company projects earnings of $3.20 per share on total annual company product revenues of about $920 million. Street is currently looking for full-year 2013 earnings of $3.24 per share on revenues of $926.97 million.

Meanwhile, San Diego, California-based Santarus also reported third-quarter net income of $30.3 million or $0.38 per share, higher than $9.0 million or $0.13 per share in the year-ago quarter. Excluding items, adjusted earnings were $35.6 million or $0.45 per share, compared to $12.3 million or $0.18 per share a year ago. Total revenues surged 81 percent to $98.8 million from last year. "We believe our acquisition of Santarus and the combined assets of our two companies should create a larger, even stronger Salix that will be better positioned to provide solutions for gastrointestinal disorders to patients and healthcare providers," Logan added.

SLXP closed Thursday's regular trading session at $71.31, down $1.73 or 2.37% on a volume of 0.98 million shares. However, the stock gained $6.69 or 9.38% in after-hours trading.

Meanwhile, SNTS closed at $23.22, down $0.31 or 1.32% on a volume of 2.02 million shares. However, the stock gained $8.58 or 36.95% in after-hours trading in a bid to match Salix's offer price.