Zacks_Analysts' Blog : Biovail and Valeant to Merge - Analyst Blog

Recently, Valeant Pharmaceuticals International (VRX) and Canadian drugmaker Biovail Corp. (BVF) announced that they have agreed to merge, thereby creating a new company that will operate under the name Valeant Pharmaceuticals International, Inc.  The transaction has been approved by the Boards of both companies.

The transaction, which will create a giant specialty pharmaceuticals company, is expected to close by year-end. The companies have taken a loan of $2.8 billion from Goldman Sachs (GS), Morgan Stanley (MS), and Jefferies and Co., a division of Jefferies Group Inc. (JEF), to finance the deal. The merged entity is expected to pay a $1.00 per share special dividend by the end of 2010.

The deal, valued at approximately $3.3 billion, entitles the shareholders of Valeant to a one-time special cash dividend of $16.77 per share immediately prior to the closing of the merger, in addition to 1.7809 shares of Biovail upon closing of the merger in exchange for each share of Valeant. The agreement is intended to qualify as a tax-free reorganization for the shareholders of Valeant. The deal values Biovail shares at a premium of 15%, based on the share price over the last 10 trading days.

The Biovail and Valeant stockholders would own approximately 50.5% and 49.5% of the shares of the merged entity, respectively. Furthermore, the merger is expected to be accretive to cash earnings per share for all shareholders within the first 12 months following the closure of the deal.

The merger is expected to result in annual cost savings of approximately $175 million by the second year. The merged entity is looking to cut approximately 4,400 jobs. 



The merged entity, which will retain Biovail's corporate structure, will boast of a significantly bigger presence in North America and other countries. The entity will primarily focus on specialty central nervous system drugs, dermatology products, the Canadian market, and emerging markets.

Furthermore, the new company will have limited patent exposure and should enjoy strong and stable cash flows from existing products, which will support growth and thereby ensure a strong balance sheet. Management of the merged entity, which will be based in Mississauga, Ontario, will be divided between the leadership of the two companies.