Drugmaker Biovail to buy Valeant in $3.3 billion deal

The combined company will take Valeant's name and expects to reap cost savings, see its cash flow triple from Valeant's roughly $300 million and specialize in products for central nervous system disorders and dermatology.

It also gives Biovail's shareholders a 15 percent premium based on stock prices over the last 10 trading days.

The new company expects to cut 15 percent to 20 percent of its combined workforce of about 4,400 and obtain a tax friendly corporate structure just as Valeant's tax credits were set to expire this year, said Michael Pearson, Valeant's current chief executive officer who will be CEO of the combined company.

"We had to do this sooner rather than later from a standpoint of gaining this tax rate," Pearson told Reuters in an interview on Monday.

The combined company's tax rate is expected to be in the 10 percent to 15 percent range, Pearson said. He said the company planned to use its increased cash flow on share buybacks and tuck-in deals.

Valeant stockholders will get a one-time special cash dividend of $16.77 per share and 1.7809 shares of Biovail common stock in exchange for each share of Valeant common stock they own.

That amounts to $42.77 for each Valeant share, using Friday's close of Biovail shares traded on the New York Stock Exchange. Valeant shares closed at $45.87 on Friday.

Biovail shares rose 10.4 percent to C$16.42 in Toronto, while Valeant shares were up 0.5 percent to $46.09 in New York.

Upon closing, Biovail stockholders will own about 50.5 percent of the shares of the combined company and Valeant stockholders will own about 49.5 percent, technically making it a Biovail acquisition of Valeant. Biovail CEO Bill Wells will be the nonexecutive

chairman.

The new Valeant's Board of Directors will consist of 11 members, including five Biovail representatives, five Valeant representatives and one independent Canadian resident.

The combined company will pay an additional $1 per share dividend to all stockholders of the new entity, after which it does not intend to pay dividends, the companies said.

ValueAct Capital, Valeant Pharmaceuticals' largest stockholder, said it would vote in favor of the deal and would be the largest stockholder of the merged entity. The deal is expected to close before the end of 2010.

The companies said the new Valeant will be able to leverage its complementary product lines and operations in specialty central nervous system, dermatology, Canada and emerging markets/branded generics.

The new company would have had a total revenue of $1.75 billion for the 12 months ended March 31, the companies said in a joint statement.

The companies have secured a commitment of $2.8 billion to finance the deal through a term-loan facility provided by Goldman Sachs Bank, Morgan Stanley and Co, and Jefferies and Co.

The new Valeant will be headquartered in Mississauga, Ontario, and will remain a Canadian domiciled corporation, listed on both the Toronto and New York Stock Exchanges, the companies said. The U.S. headquarters will be determined after the deal is closed.

The deal will add to the combined company's earnings within the first 12 months after the deal is closed. The new Valeant expects to generate at least $175 million in annual cost savings in the second year.

Valeant Pharmaceuticals is being advised by Goldman, Sachs and Co and Jefferies and Co, while Morgan Stanley and Co is advising Biovail.

(Reporting by Sakthi Prasad and Esha Dey in Bangalore, Lewis Krauskopf and Paritosh Bansal in New York; editing by Louise Heavens, Gopakumar Warrier and Andre Grenon)

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