Valeant: The Sole Suitor for Obagi

Zacks

Valeant Pharmaceuticals’ (VRX) proposed acquisition of Obagi Medical Products, Inc. (OMPI) received a boost with Merz Pharma Group opting out of the race to purchase Obagi. Merz’s decision ended the bidding war between Valeant and itself.

Merz Pharma’s decision came in wake of an increased acquisition offer from Valeant Pharmaceuticals.  We note that on Apr 2, 2013, Merz Pharma offered to acquire Obagi for $22 per share in cash after Valeant proposed to acquire Obagi for $19.75 per share on Mar 19, 2013. Subsequently, Valeant upped its offer price to $24.00.

The increased offer price represented a 56% premium to Obagi's closing share price on Mar 19, 2013 compared to 28% premium offered earlier. The amended agreement was unanimously approved by Obagi’s board.

We note that Obagi develops markets and sells products, which prevent or improve the most common and visible skin disorders.

With leading dermatology brands such as Obagi Nu-Derm, Condition & Enhance, Obagi-C Rx, ELASTIDerm and CLENZIDerm in its portfolio, Obagi has grown its revenues from $35.6 million in 2001 to $120.7 million in 2012.  

Valeant also has a strong presence in the dermatology field. We believe that Valeant’s acquisition of Obagi, on materializing, would further strengthen Valeant’s dermatology portfolio and pave way for new growth opportunities.

We note that acquisition activity has been quite strong in recent times in the dermatological segment. In Dec 2012, Valeant acquired the entire outstanding common stock of Medicis Pharmaceutical Corporation for approximately $2.6 billion.

The erstwhile Medicis Pharma focused on the development and marketing of products for the treatment of dermatological and aesthetic conditions in the US.

Meanwhile, Allergan, Inc. (AGN) acquired privately-held SkinMedica, Inc. in Dec 2012 with a focus on the latter’s topical aesthetics skin care business.

Valeant currently carries a Zacks Rank #3 (Hold). Right now, Avanir Pharmaceuticals Ltd. (AVNR) looks better positioned with a Zacks Rank #2 (Buy).

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