Auxilium says Endo offer not enough to break off with QLT

Endo CEO Rajiv De Silva--FiercePharma file
Endo CEO Rajiv De Silva

And so the M&A dance begins. Auxilium Pharmaceuticals ($AUXL) today turned its back on a $2.2 billion buyout offer it received last week from Endo International ($ENDP) and said it would stick instead with its plan to merge with Canadian eye-drug maker QLT. 

The Chesterbrook, PA-based Auxilium said the Endo offer "significantly undervalued" its worth and that its board "unanimously voted" to merge with QLT. But the board also left the door open to a better deal, from Endo or anyone else that might want to get in on the action. 

"However, under the terms of the merger agreement with QLT, Auxilium maintains the right to engage in discussions with Endo and other third parties, subject to certain conditions in the merger agreement," it said in a statement today.

Endo had a quick response today. "We note Auxilium's statement that it maintains the right to engage in discussions with Endo and it is our strong preference to work collaboratively with Auxilium to realize the benefits of this transaction." It didn't hint at a better offer, only saying that it believed that its cash and stock offer "for Auxilium is compelling," providing both immediate value and upside for investors.

How likely is it that Endo will win the day? Canaccord Genuity analyst Corey Davis last week was giving it an "uber-high probability of being consummated." And Reuters says that Cowen & Co analysts told investors in a note that, "Now that Auxilium is firmly in play, we expect the company's (mostly frustrated) shareholder base to push for a sale to the highest bidder."

As Reuters points out, Auxilium said in June it was planning a merger with QLT for $346 million in stock so that it could relocate its headquarters to British Columbia and so lower its tax base. The deal is expected to close in the fourth quarter, at which point Auxilium shareholders would own about 76% of the new company and QLT shareholder 24%. But a deal with Endo could give it that same tax advantage because Endo did its own tax inversion deal last year by relocating from Malvern, PA, to Dublin when it acquired Paladin Labs.

Endo, which is working to get beyond its reliance on pain products, has been on a bit of a buying binge. It sees its changing portfolio, which includes a newly approved drug for low testosterone, as "highly complementary," with Auxilium's 12 FDA-approved products, which includes Xiaflex, a treatment for curvature of the penis. Endo, also sees about $75 million in cost savings from a deal. Rajiv De Silva, who became Endo CEO last year, is the former president of serial buyer Valeant ($VRX), and so knows a thing or two about how to play the M&A game.

- here's the Auxilium release
- here's the Endo comment
- get more from Reuters