Valeant fires back at Merz with $415M-plus Obagi bid

Apparently, investors were right about Obagi Medical Products. After Merz Pharma trumped Valeant Pharmaceuticals' ($VRX) offer for the skin-care company, the stock jumped more than 8%--significantly past Merz's $22-per-share bid. They were expecting a bidding war.

We were skeptical. Valeant commonly walks away when outbid for a company. But this time, the Canadian drugmaker wants Obagi badly enough--and figures it's worth enough--to justify a higher price. Valeant and Obagi have hammered out a new deal at $24 per share. That takes the price past $415 million.

Valeant CEO Michael Pearson aims to dominate the dermatology market. Sales in the field are growing and the segment is fragmented, ripe for consolidation. Plus, on the aesthetic side of the business, products aren't covered by insurance, and so they're not vulnerable to payer price-squeezing. That's one thing in Obagi's favor; the California company makes beauty treatments, anti-aging products and remedies for rosacea and acne. A good chunk of its products are cosmetic, rather than medical.

Pearson also likes Obagi's network of relationships with doctors. When Valeant first announced its agreement to buy the company, Pearson cited its strong reputation among dermatologists and plastic surgeons. Valeant could leverage those relationships into higher sales of its other cosmetic products, including the wrinkle-fighters it recently acquired along with Medicis Pharmaceutical.

Valeant's tender offer expires April 23. Will Merz come back with a higher bid before then? The German company seemed rather intent on buying Obagi; in yesterday's letter to the company's CEO, Merz said it was ready to go, no additional due diligence required. So, Investors just might get their bidding war.

- see the release from Valeant