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On verge of $13B merger, Valeant and Actavis stop talking

WSJ, FT report advanced negotiations for all-stock combo deal
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Valeant Pharmaceuticals was on the verge of its biggest deal yet last week. Until merger talks with generics giant Actavis fell apart, that is. The Financial Times reports that a last-minute dispute over deal terms quashed the agreement--at least for now. The companies were hoping to announce their plans today.

Valeant ($VRX) and Actavis ($ACT) had been talking about a deal for some time, the New York Times' sources say. Under their most recent proposal, Valeant would have paid $13 billion in stock to acquire Actavis. But Actavis board members weren't happy with the market premium, among other things, the Times says. Shareholders might have preferred cash to an all-stock deal, but Valeant has plenty of debt already and less than $1 billion in cash on hand. The companies themselves aren't talking.

Canadian drugmaker Valeant is a built-by-acquisition company, with dozens of deals to its credit in recent years; its most recent tender offer, in a $415 million-plus deal for Obagi Medical Products, wrapped up just last week. Actavis itself is the product of a recent merger; Watson Pharmaceuticals bought Swiss-based Actavis last year for $5.6 billion, and changed the name of the combined company to Actavis.

Valeant's $10 billion-plus debt load has raised some eyebrows, but CEO J. Michael Pearson has been pledging more dealmaking. Perhaps even a transformational merger-of-equals. A Valeant-Actavis combination would certainly be that: Actavis, the third-largest generics maker in the world, racked up $5.91 billion in sales last year, while Valeant brought in $3.5 billion. Valeant beats Actavis on market cap, at $22 billion to about $11 billion.

The companies aren't strangers, either. Earlier this month, they teamed up on an authorized generics version of Zovirax ointment for genital herpes and Zovirax cream for cold sores. And Valeant signed on to market Actavis' steroid tape Cordran for skin maladies such as eczema and psoriasis. The two companies also settled patent disputes over skin treatments Ziana and Zyclara, in deals allowing Actavis to launch generic versions and pay Valeant royalties on the drugs.

Whether the two drugmakers will come to terms remains to be seen. Because this would be the biggest deal of 2013 so far, plenty of people will be watching to see whether the talks resume. Stay tuned.

- check out the FT news
- read the NYT piece

Special Report: Top Biopharma M&A Deals - 2012

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