Auxilium takes money, runs from inversion with $2.6B Endo deal

Auxilium CEO Adrian Adams

Endo ($ENDP) found the magic number in its negotiations with Auxilium Pharmaceuticals ($AUXL), boosting its offer to $2.6 billion and finally convincing its target to abandon plans for a tax-saving deal.

The two  have agreed on buyout in which Endo will trade $33.25 in cash and stock for each share of Auxilium, a 55% premium to the company's closing price before Endo made its first pitch last month. Under the deal, Auxilium shareholders will get to choose whether to take cash, Endo stock or a bit of both, and the two companies expect to close out their merger in the first half of 2015.

Endo first approached Auxilium on Sept. 16 with a friendly but unsolicited offer to buy the company for $2.2 billion under one condition: Auxilium had to call off an already-announced deal through which it would reverse-merge into Canada's QLT ($QLTI) and resultingly slash its tax rate. That $2.2 billion pitch "significantly undervalue(d)" the company, Auxilium's board said at the time, electing to stay the course with the $345 million QLT deal.

But another $400 million apparently made all the difference, and, just before signing its deal with Endo, Auxilium terminated the QLT agreement, under which it owes a $28.4 million breakup fee.

"We are proud of the work Auxilium has done to develop a portfolio of important products that are improving the lives of patients to create significant stockholder value," Auxilium CEO Adrian Adams said in a statement. "We believe this transaction is the culmination of those efforts."

For its part, QLT is "obviously disappointed," CEO Jason Aryeh said in a separate release, and it's now planning to "re-engage in our assessment of all potential strategic options."

The Auxilium acquisition is the latest in a string of deals for Endo, which pulled off a tax-cutting inversion of its own earlier this year with a $1.6 billion takeout of Paladin Labs. In Auxilium, the company sees a promising stable of urology and orthopedic treatments, led by the approved erectile dysfunction drug Stendra and the connective tissue disorder therapy Xiaflex. And then there are the synergies: Endo expects to save about $175 million a year through the deal, thanks in large part to Auxilium's earlier commitment to lay off 30% of its workers and reduce its annual budget by $75 million.

"By adding Auxilium's complementary commercial portfolio, we believe this transaction is aligned with our strategy of pursuing accretive, value creating growth opportunities," Endo CEO Rajiv De Silva said.

- read the announcement

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