Horizon leverages tax-inversion advantages to fuel $3B Depomed bid

Horizon CEO Timothy Walbert

Despite inking its deal to buy Ireland's Vidara Therapeutics at the height of the U.S. tax inversion backlash, former Illinois company Horizon Pharma ($HZNP) didn't back down. It closed its acquisition right before new, stricter tax inversion rules took hold--and now, as it embarks on a hostile pursuit of California's Depomed ($DEPO), it's reaping the benefits in more ways than one.

As Horizon CEO Timothy Walbert told The Wall Street Journal, nabbing Depomed would generate "significant" tax savings. Its target shelled out 38% of its profits in taxes last year, and Horizon is aiming for a tax rate in the low 20s going forward.

In short, redomiciled drugmakers enjoy their own tax advantages, and those same advantages improve their M&A prospects, too. A lower tax rate "gives you synergies that allow you to compete when it comes to valuing assets," Walbert told the paper. "We think about it as leveling the playing field."

Horizon would hardly be the first to use that leg up at the bargaining table; some of pharma's most acquisitive companies have been using the benefit to keep the M&A train chugging along.

Take Valeant ($VRX), for example. Since scoring a lower rate in its 2010 move to Canada, the company has picked up drugmakers like Medicis, Bausch & Lomb and Salix. Endo ($ENDP), which shifted to Ireland with 2014's Paladin Labs buyout, has now added DAVA and Auxilium to its list of M&A conquests, and a deal for Par Pharmaceutical is pending. And then, of course, there's Allergan ($AGN), which began as Actavis before an inversion deal for Dublin's Warner Chilcott and acquisitions of Forest Labs and Allergan launched it into the ranks of Big Pharma's biggest.

As Horizon sees it, though, tax savings are just one reason a Depomed tie-up makes sense. A combined company would boast a lineup of 13 marketed meds, nearly doubling Horizon's current roster. And many of the products in Depomed's stable come with patent protection through at least 2022, the WSJ notes.

For now, though, Depomed doesn't seem to want much to do with the latest M&A trend. Tuesday, it rejected its suitor for the third time, claiming the $29.25-a-share offer undervalues its prospects--especially now that it boasts U.S. distribution rights to one-time J&J ($JNJ) franchise Nucynta, a diabetes-related nerve pain treatment Depomed locked up in April.

- read the WSJ story (sub. req.)

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