(Reuters) - Valeant Pharmaceuticals International Inc's stock jumped 15 percent on Tuesday on news of a $2.6 billion deal to buy Medicis Pharmaceutical Corp, a move that could give the Canadian drugmaker's skin care business a big boost.
Valeant announced the $44 a share offer for its U.S. competitor on Monday, when markets were closed in Canada and the United States for Labor Day. Medicis stock rose 38.2 percent to $43.61 on Tuesday.
Valeant shares held steady at around C$58 on the Toronto Stock Exchange even though Moody's Investors Service said it was reviewing the company's ratings for downgrade because the deal would increase its debt level. Moody's also acknowledged "solid strategic rationale" for the deal, however.
The combined company would dominate the U.S. dermatology market. Medicis led that market in gross sales in 2011, while Valeant, Canada's biggest public drugmaker, was ranked third, Valeant said on a Tuesday conference call.
"We think it's a great deal for them. They got a great price and it's a business that aligns perfectly with where they have been focused," said Morningstar analyst David Krempa.
Krempa said Valeant has sharpened its focus on dermatology in the last year or so. The segment is less dominated by big pharmaceutical companies than others, and patients are more likely to pay out of pocket, he said.
Valeant, on the acquisition trail since its 2010 takeover by Biovail Corp, which assumed the Valeant name, has favored businesses where patients pay out of pocket, cutting its exposure to cost-sensitive insurers, and to U.S. health reform.
Some recent deals have been in dermatology, ophthalmology and sports supplements.
On a conference call, Valeant said the deal would increase its leverage to about 4.2 times net debt to earnings before interest, taxes, depreciation and amortization, from 4.0, but it said it expects to cut that to less than 4.0 within 12 months.
"I think it makes sense to leverage up for a deal like this that fits so well," Krempa said. "They have proven that they can integrate very well, and they can do this. It's not an untested company."
Valeant Chief Executive Michael Pearson said on the conference call that he does not expect a bidding war for Medicis.
"I think we paid a very fair price," he said. Pearson said Medicis is particularly valuable to Valeant, in part because the two companies' drug portfolios are complementary. Valeant's offer is a 39 percent premium on the Friday closing price of Medicis shares.
Medicis's products include Solodyn, a prescription acne tablet, Restylane, an injectable filler, and Dysport, a competitor to Allergan Inc's Botox anti-wrinkle treatment.
Pearson said he does not expect regulators to force Valeant to spin off any significant Medicis products.
Last December, the U.S. Federal Trade Commission approved Valeant's acquisitions of the dermatology units of Sanofi and Johnson & Johnson on the condition that Valeant sell off the rights to three prescription drugs.
The company said the Medicis deal, its biggest since a failed $5.7 billion bid to acquire specialty drugmaker Cephalon Inc last year, would add to its cash earnings per share immediately.
Pearson told Reuters on Monday that more deals are likely this year, though they would be smaller.
Valeant's stock was up 15.1 percent at C$58.07 on Tuesday morning on the Toronto Stock Exchange.
Reporting by Allison Martell; Editing by Peter Galloway