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Pharma ETFs in Focus on Valeant-Salix Deal

After a blockbuster 2014, the health care space continues its mergers and acquisitions this year as well. The latest catalyst in the space is the Canadian drug maker Valeant Pharmaceuticals International (VRX), which is set to acquire leading U.S. gastrointestinal drug maker Salix Pharmaceuticals (SLXP) for $14.5 billion, including $4.4 billion debt.

The transaction represents the largest deal for Valeant in its history, according to data compiled by Bloomberg and follows Valeant's failed hostile bid for Botox-maker Allergan (AGN) last year.    

Valeant-Salix Deal in Detail

Under the terms of the deal, Quebec-based Valeant will pay $158 per share in cash to acquire all of the stocks of Salix that will be financed through a combination of bank debt and bonds. The transaction, approved by the board of directors of both companies, is expected to close in the second quarter.

The acquisition will expand Valeant’s presence in a growing, multibillion-dollar market for drugs treating gastrointestinal diseases or stomach disorders like traveler’s diarrhea. The company estimates that the U.S. market for stomach-disorder treatments currently stands at $5 billion and is growing 5% a year. Also, Salix is leading the market in terms of volume growth and has a promising near-term pipeline of innovative products.

The announced deal is minimally accretive to Valeant’s earnings this year but will add 20 cents per share in 2016. In addition, the combined company will yield more than $500 million in annual cost savings within six months. However, the deal comes with a price, as it will likely double Valeant’s debt to $31 billion.

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