Valeant shares shoot higher on Medicis deal

Tue Sep 4, 2012 12:28pm EDT
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(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.   Continued...