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Important Indications: The Salix Situation Is Competitive


Dec. 4 2020, Updated 10:53 a.m. ET

Background – the Valeant transaction

The background to the Valeant (VRX) transaction is found in the tender offer documents filed with the SEC (U.S. Securities and Exchange Commission). It appears that when Salix (SLXP) discovered it had an inventory issue, the company hired a financial adviser to evaluate strategic alternatives.

Salix’s bankers approached Valeant in late January. The bankers asked if Valeant was interested in buying Salix. Valeant agreed to enter into a standstill and confidentiality agreement. It agreed to conducted due diligence. Ultimately, this led to the agreed transaction with Salix.

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You can read the write up for the Salix-Valeant merger in Valeant makes yet another acquisition: Salix Pharmaceuticals. It mentions that there were some strange things about how Valeant was behaving. First, it agreed to carve out the upcoming FDA approval of Salix’s drug Xifaxan from the material adverse change clause. This is highly unusual. Second, it conducted a tender offer, as opposed to a normal merger. Tender offers are usually reserved for smaller deals, at least in the US. In big deals, they usually mean that the buyer wants to move fast.

There’s a burning question right now. What sort of process did Salix run in January?

Did it only solicit a few potential buyers? It must have, since Endo (ENDP) made an unsolicited offer and the bidding process is now public. If Salix’s board ends up recommending a transaction with Endo, the background to the deal will be very interesting.

Other merger arbitrage resources

Other important merger spreads include the deal between Hospira (HSP) and Pfizer (PFE). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).

Correction: When this article was originally published, the title stated that the situation could get competitive. We have updated the title to clarify that the situation is competitive. We regret the error.


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