Cash-desperate Valeant talks $10B Salix deal with Takeda: WSJ


Earlier this year, Valeant reportedly turned down a takeover offer from Takeda and TPG. Now, the Japanese drugmaker wants to snag just one piece of the embattled company--and this time, Valeant may be happy to oblige.

The Canadian pharma is in advanced talks to sell its Salix gastrointestinal unit to Takeda for about $10 billion, The Wall Street Journal reports. Valeant nabbed Salix just a year and a half ago for about $11 billion, beating out interested suitors Shire and Endo.

That $10 billion wouldn't be a fire-sale price, necessarily. Salix so far isn't performing up to expectations. The way Evercore ISI analyst Umer Raffat sees it, a sale between $8.5 billion and $10 billion “reads better than what the market is assigning to this business within Valeant currently.”

While Valeant hasn’t disclosed revenues for the business, “there are enough hints to back it out,” and he estimates Salix--which has been hurt by slower-than-expected sales--is tracking just under $1.5 billion in revenue for for the year.

Importantly, the purchase price would include about $8.5 billion in cash, along with future royalty payments to Valeant, sources told the newspaper--and that’s cash the company desperately needs. An M&A-fueled debt-pileup spawned bankruptcy concerns earlier this year, and Valeant had to make concessions to creditors to avoid default. If the Justice Department follows through on fraud charges that are reportedly in the works, those bankrupcty worries could come roaring back.

“We strongly suggest investors consider the risks of potential sizable financial penalties and costly legal actions on a company with more than $30 billion of debt that has already sought debt waivers twice,” Wells Fargo analyst David Maris wrote in a Monday note to clients.

Former Valeant CEO J. Michael Pearson began touting asset sales as a way to raise cash back in March, and since then, new skipper Joseph Papa has kept running with the idea. But the company wasn’t keen on giving itself up entirely when Takeda and TPG came calling, the WSJ said in May. Valeant officials wanted to give Papa a chance to take the company--plagued by channel-stuffing allegations, political pricing pushback and the debt-default concerns--in a new direction.

Now, Takeda may be able to snag the unit it was likely most interested in anyway. The Japanese drugmaker has been counting on GI to help it complete the turnaround CEO Christophe Weber promised when he took the helm.

So far, its new ulcerative colitis and Crohn’s disease med Entyvio has come through, and Takeda may be thinking it can pull Entyvio-style growth from Salix star Xifaxan as well. Valeant has said Xifaxan could hit blockbuster heights this year, but the drug hasn’t lived up to analyst expectations, thanks in part to competition from Allergan rival Viberzi. 

Meanwhile, the deal-talks news put Valeant shares on the rise just after word of the accounting fraud sent them to their lowest depths since 2010.

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