Will Allergan bid for Salix as it looks to escape Valeant's clutches?

Allergan CEO David Pyott

Allergan CEO David Pyott has hinted he might make a pickup to thwart Valeant's attempts to take over his company. And now that one-time target Shire ($SHPG) is off the table after being snatched up by AbbVie ($ABBV), his sights may be set on Salix.

Allergan ($AGN) has approached the North Carolina company about a potential acquisition, with a deal for Salix--or another unknown drugmaker--possibly as early as next month, The Wall Street Journal's sources say. Salix ($SLXP) would bring along a portfolio of gastrointestinal drugs and a $10 billion market cap, which could put up a sizeable roadblock for Valeant ($VRX) as it looks to complete a $53 billion hostile takeover.

The potential icing on the cake for Allergan: Salix last month agreed to buy the Irish unit of Cosmo Pharmaceuticals in a tax-inversion deal. If Allergan were to go forth with a Salix buyout, there's a possibility Cosmo could be part of the transaction--and that that transaction could be structured as a tax inversion, too. That would slice Allergan's tax rate and negate a potential benefit of the proposed merger with Canada-based Valeant.

Right now, though, terms are unclear. As the Journal points out, Salix's agreement with Cosmo actually prohibits both parties from nixing the deal in favor of an alternative transaction. But Sterne Agee analyst Shibani Malhotra says Salix could wriggle free--after paying a $25 million breakup fee--if a more attractive suitor came calling. And Salix CEO Carolyn Logan has said the drugmaker "would be open" and "would listen" to other offers.

Meanwhile, the increasingly heated Valeant-Allergan battle will play on, thanks to a move from Valeant and partner Bill Ackman to extend the expiration on their tender offer through the end of this year. But as Valeant attempts to rally the support necessary to call a special meeting of shareholders--at which it's aiming to overturn Allergan's board and strike its takeover defenses--and Allergan continues to point its finger at the tandem for so-called insider trading, shareholders may be losing patience.

More than three-quarters of Allergan's top 100 investors sold shares during the second quarter, with four exiting the stock altogether and 10 more selling off more than 90% of their position, the WSJ notes. On the Valeant side, 57 fund firms exited Valeant stock completely, while 148 funds--including mutual fund behemoth Fidelity Investments--cut their positions, Reuters reports.

"The share price had gone up a lot and when things started to look a little more difficult, many investors were not ready to stick around and wait for that little extra percent they might make if and when the deal is consummated," one shareholder at a New York hedge fund told the news service.

And while some shareholders--including Valeant's No. 3, ValueAct Capital--have encouraged the company to pursue other opportunities if the Allergan drama drags on too long, a 4% drop in Valeant's share price last quarter could make that a little harder to do.

"The dive in the stock price does make it difficult to pursue Allergan and others," company investor Gautam Dhingra, CEO of High Pointe Capital Management, told Reuters.

- see the Wall Street Journal stories here and here (sub. req.)
- get more from Reuters

Special Reports: Pharma's top 10 M&A deals of 2013 - Valeant/Bausch + Lomb | The most influential people in biopharma today - J. Michael Pearson - Valeant | 20 Highest-Paid Biopharma CEOs of 2012 - David Pyott - Allergan

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