Salix to Buy Santarus for $2.6 Billion for Diabetes Drug

Salix Pharmaceuticals Ltd. (SLXP), a maker of drugs for gastrointestinal diseases, said it will acquire Santarus Inc. (SNTS) for about $2.6 billion to gain treatments for diabetes and heartburn.

Salix, based in Raleigh, North Carolina, will pay $32 a share in cash for San Diego-based Santarus, a 39 percent premium to Santarus's average closing price in the last 30 trading days, the companies said in a statement.

The combined company will have revenue of $1.3 billion and benefit from merging two sales forces and increasing its slate of experimental drugs, Salix Chief Executive Officer Carolyn Logan said in the statement. Salix's top-selling drug is Xifaxan, for travelers' diarrhea, which drew $514.5 million in 2012 sales. Santarus sells Glumetza for Type 2 diabetes, which analysts estimate will generate $221.6 million in 2015 revenue, and Zegerid for heartburn, forecast for $106.3 million in sales.

The deal "is transformative for Salix both commercially and financially, fulfilling many of our strategic needs while providing immediate and significant accretion in 2014 and beyond," Logan said in the statement released yesterday.

The companies said they expect the acquisition to close in the first quarter of 2014.

There have been 44 acquisitions of specialty drug companies for more than $500 million in the last three years, according to data compiled by Bloomberg. The average disclosed size was $1.2 billion and average premium was 20 percent, the data show. The largest deal was Perrigo Co. (PRGO)'s purchase of Elan Corp. for $6.2 billion earlier this year.

Shares Rise

Salix gained as much as 9.4 percent to $78 in extended trading after the purchase was announced. Earlier, the company closed at $71.31 in New York. The shares increased 76 percent this year through yesterday. Santarus jumped 37 percent to $31.80 after closing at $23.22, and has more than doubled this year.

Salix will pay for the deal with about $800 million cash on hand and $1.95 billion in committed financing from Jefferies Finance LLC, which also agreed to provide an additional $150 million revolving credit facility, the companies said.

Salix will continue to look for "tuck-away" acquisitions, Chief Financial Officer Adam Derbyshire told analysts on a conference call. He said late-stage opportunities that require minimal upfront spending are optimal.

"Clearly we're not looking to do anything along these lines," Derbyshire said, referring to the Santarus acquisition. "Our philosophy about business development is we never stop looking; we can't afford to stop looking."

Jefferies LLC was Salix's financial adviser, while Covington & Burling LLP provided legal counsel. Stifel Nicolaus & Co. was financial adviser for Santarus, while Latham & Watkins LLP was legal adviser.