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The Salix-Endo Proposal: Basics of the Transaction

Brent Nyitray, CFA, MBA

Endo Enters the Picture: The Salix Situation Gets Competitive (Part 6 of 6)

(Continued from Part 5)

Basics of the transaction

The Salix-Endo proposal envisions Salix (SLXP) shareholders merging with Endo International (ENDP) for a combination of cash and stock. Endo anticipates that it can close the merger in 2Q15. Currently, Salix is in a recommended transaction with Valeant (VRX) for $158 per share. The Valeant tender expires on March 31, 2015. You can read about the Salix-Valeant transaction in Valeant makes yet another acquisition: Salix Pharmaceuticals.

Terms of the transaction

Salix shareholders will receive $45 in cash and 1.4607 shares of Endo per share once the deal closes.

Conditions precedent

The following conditions are necessary for the deal to close, although there may be more.

  • Salix shareholder vote
  • Endo shareholder vote
  • SEC (U.S. Securities and Exchange Commission) approval of proxy
  • HRS (Hart–Scott–Rodino) antitrust filing
  • Any other filings

Non-solicitation

Salix’s agreement with Valeant has a non-solicitation agreement with a fiduciary out. This means that prior to shareholder approval of the transaction, if Salix is approached by another suitor, it could discuss a merger with them.

First, Salix’s board of directors would have to determine that such discussions could lead to a bona fide offer that would likely result in a higher bid for the company. However, Salix isn’t permitted to shop itself around.

Breakup fee

In the event that another bidder comes in and tops Valeant’s  bid, it will owe a breakup fee of just over $400 million. Endo said it would assist Salix with the breakup fee.

Financing

Endo has “highly confident” letters for the financing, but no commitment letters.

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).

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