Valeant efforts to buy Obagi get boost after rival withdraws efforts

By Ross Marowits, The Canadian Press

MONTREAL – Valeant Pharmaceuticals appears to have won its takeover battle for Obagi Medical Products after a German-based rival decided not to raise its bid for the dermatology products company.

Valeant upped its offer for Obagi (Nasdaq:OMPI) to US$24 per share from US$19.75 last week after being trumped by a US$22 per share bid from Merz Pharma GmbH.

Merz chief executive Philip Burchard said Monday that Obagi would have been a complementary fit to its own portfolio of injectables.

“However, Merz is a disciplined buyer and at this level the economics of such a transaction do not meet our requirements,” Burchard said in a news release.

“We look forward to exploring other acquisition opportunities that fit our strategy.”

In a letter to Obagi’s board, Burchard had said he was “surprised” and “disappointed” by the announcement of the initial deal with Valeant given that it had been engaged in ongoing talks since January about a potential transaction.

Montreal-based Valeant (TSX:VRX) said it will now move to complete the transaction as planned.

“You can never guarantee that everything goes smoothly when dealing with regulatory agencies, but we are experienced with this and believe we can get this completed within our schedule,” spokeswoman Laurie Little said in an email.

Its offer expires at midnight eastern time April 23 and is conditional on a majority of Obagi shares being tendered.

Valeant says California-based Obagi has a strong reputation in dermatologist and plastic surgeon dispensed products, which is a natural complement to its dermatology offerings.

Analyst David Krempa of Morningstar said he doesn’t expect any other bidders to emerge.

“It seems to be all clear for Valeant now,” he wrote in an email.

He said the deal would add about 10 cents per share to his 2014 earnings estimate of $6.45 for Valeant, or a less than two per cent increase.

Krempa believes Valeant can surpass its estimate to reduce $40 million in annual costs, given its experience with two similarly sized acquisitions — Dermik and Ortho Dermatologics.

However, he said the deal highlights Valeant’s increasing challenge to acquire public companies at attractive prices and said its reputation of cost-cutting drives alternative bids.

Founded in 1988, Obagi earned US$16.6 million on US$120.7 million of sales last year.

Valeant, formerly Biovail Corp., develops, manufactures and sells a broad range of pharmaceutical products primarily in the areas of dermatology, neurology and branded generic drugs.

Obagi’s shares slumped $1.49, or 5.86 per cent, to US$23.93 in morning trading Monday on the Nasdaq. Valeant’s shares were off nine cents at C$72.89 on the Toronto Stock Exchange.

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