Valeant Pharmaceuticals tops Paladin’s hostile bid for Cold-FX maker Afexa

MONTREAL – Valeant Pharmaceuticals International Inc. (TSX:VRX) expects to boost its lineup of non-prescription products with the friendly takeover of Cold-FX maker Afexa, bidding $76-million Tuesday to far outstrip a hostile offer by Montreal’s Paladin Labs.

The Valeant bid was well above Paladin’s $56.7-million offer and shares in Afexa (TSX:FXA) closed up 20 per cent in trading to match Valeant’s offer price of 71 cents, a sign the market is betting Valeant will succeed.

“Valeant sees it as a good platform that they can do more with,” Afexa board chairman William White said of Cold-FX cold and flu treatment. “They think Cold-FX is a good product.”

Afexa shareholders should be receptive to Valeant’s offer, White said.

“I think they’re going to be pleased that it’s significantly higher than the hostile bid that was on the table.”

White also said Afexa has been given 30 days to consider any other offers that might arise.

Mississauga-based Valeant said Afexa’s product line will add to its own over-the-counter lineup of products which include the Dermaglow and CeraVe skin-care products.

“Afexa’s strong franchise of consumer brands, including Cold-FX, Canada’s leading over-the-counter (OTC) cold and flu treatment, will be a solid addition to our developing OTC product portfolio in Canada,” Valeant chairman and CEO Michael Pearson said in a statement.

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Cold-FX has been promoted by Olympic figure skating champion Joannie Rochette and TV personality and former NHL coach Don Cherry.

Paladin (TSX:PLB) said in a statement Tuesday that it’s reviewing Valeant’s bid and will make an announcement later. The company noted it holds 14.95 per cent of Afexa’s shares.

Paladin has said the Cold-FX remedy would increase its sales of its own over-the-counter medications. It has nine non-prescription medications including children’s fever reducer Tempra, teething product Anbesol, anti-diarrhea relief Kaopectate, the sleep aid Unisom and the emergency contraceptive Plan B, but it doesn’t currently have any anti-cold remedies.

UBS Investment Research analyst Marc Goodman said the Valeant deal is an “inexpensive way” to increase the exposure of over-the-counter products in Canada. But he noted that Afexa’s sales are highly seasonal depending on the severity of flu and colds.

“We like the deal and believe it highlights that Valeant will continue to be aggressive on both small and large deals,” Goodman wrote in a research note.

Under terms of the Valeant offer, Afexa shareholders would receive 71 cents in cash per common share, a 30 per cent premium over Afexa’s 30-trading day volume average on the Toronto Stock Exchange.

Valeant, the former Biovail, said its bid also represented a premium of 29 per cent to Paladin’s cash offer and a 49 per cent premium to its alternative share consideration based on Paladin’s closing price of $36.74 on Monday.

Shares in Valeant closed down 19 cents at $43.35, while Paladin shares lost 48 cents to close at $36.26 on the TSX.

Afexa management had earlier advised its shareholders to reject Paladin’s overture while it considered better bids. White said last week that the Paladin offer, which amounted to 55 cents per share, was only a five per cent premium to the weighted average price of Afexa stock through the first half of the year.

“The offer actually doesn’t even adequately compensate against the value of the lead product, Cold-FX,” White has said.

Besides Canada, Cold-FX is now available in Hong Kong and there are plans to have it sold in the United States, China and Japan, significantly increasing the company’s revenues.

Valeant is a multinational, specialty pharmaceutical company that develops, manufactures and markets a range of drugs.

Paladin is focused on developing, acquiring, in-licensing, marketing and distributing pharmaceutical products.

Note to readers: This is a corrected story. A previous version incorrectly said Afexa has been given 35 days to consider other offers. It has in fact been given 30 days.