Specialty drugmaker Salix Pharmaceuticals ($SLXP) is backing out of a $2.7 billion deal that would have given it an Irish domicile--and thus a lower tax rate--in the first victory for U.S. leaders working to discourage such transactions.
The plan was to reverse-merge with the Irish division of Cosmo Pharmaceuticals, an Italian company, creating a new entity 80% owned by Salix shareholders. Now, however, a "changed political environment" has "created more uncertainty regarding the potential benefits we expected to achieve," Salix CEO Carolyn Logan said in a statement, and the two parties have agreed to call the deal off.
In the short term, that means Salix owes Cosmo a $25 million kill fee, but the deal's failure has much broader implications in biopharma M&A, as Salix has become a chess piece in an industry rife with consolidation.
Over the past few months, the North Carolina company has found itself in the crosshairs of Allergan ($AGN) and Actavis ($ACT), with mounting reports that each was considering offers worth more than $10 billion.
Allergan's interest is based both on growth and self-preservation, as the drugmaker is in a protracted fight with Valeant Pharmaceuticals ($VRX), which has made a series of hostile bids and is headed for a make-or-break shareholder vote in December that could force its target to start negotiating. But Valeant's investor agitation has analysts skeptical that a Salix buyout will go through any time soon, as many of Allergan's largest backers have requested a say in any such large deal.
That leaves Actavis, with whom Salix has been having intensifying conversations over the past week, according to Bloomberg. Actavis, itself a reported target of the inversion-minded Pfizer ($PFE), has plenty incentive to make a purchase, though no deal is imminent, the news service's sources said.
The end of the planned Salix-Cosmo merger comes on the heels of Treasury Department efforts to curb inversion deals, which included closing a few loopholes, making it more difficult for inverted companies to move money around and limiting restructuring. Congress is expected to draft a bill that would further discourage tax-saving deals.
- read the statement
- here's Bloomberg's story