Why Endo Wants to Acquire Auxilium So Much

Health and Healthcare

Published: September 17, 2014 10:05 am

Endo International PLC (NASDAQ: ENDP) made an unsolicited buyout offer to Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL). This news comes right after Auxilium announced that it entered into an agreement to merge with QLT Inc. (NASDAQ: QLTI). The question that instantly comes to mind is exactly what Endo expects to get here, and why this deal is so important.

Endo’s offer for Auxilium is for $28.10 per share and would be financed in cash and by Endo shares. The deal would total in the neighborhood of $2.2 billion. This is well below the 52-week high that Auxilium reached back in March of $32.89. Tuesday’s closing price was $21.52, but there is hope of a higher deal price because Auxilium shares were above the implied offer price in Wednesday’s early trading.

The deal would be beneficial to Endo, and the company represented that it be immediately accretive to its earnings. What Endo gets, and what is offers to Auxilium shareholders, is a continued participation in Endo’s global expansion, while accelerating Endo’s goal of becoming a top specialty health care company that also has organic growth opportunities. Auxilium’s men’s health care products and R&D portfolio would also enhance Endo’s branded pharmaceutical business.

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Still, Auxilium’s response was a poison pill by creating a shareholder rights plan. The company said:

Auxilium announced that the Board has unanimously adopted a one-year stockholder rights plan (the “Plan”) effective September 16, 2014 and declared a dividend distribution of one preferred share purchase right on each outstanding share of Auxilium’s common stock. QLT Inc. consented to the adoption of the Plan and related matters in accordance with the terms of the merger agreement. The Plan is intended to ensure that the Board remains in the best position to perform its fiduciary duties and to enable all Auxilium stockholders to receive fair and equal treatment. It is also designed to allow all Auxilium stockholders to realize the long-term value of their investment by reducing the likelihood that any person or group would gain control of Auxilium through open market accumulation or other coercive tactics without appropriately compensating Auxilium’s stockholders for such control or providing the Board sufficient time to make informed judgments.

In premarket trading, Auxilium gained roughly 44% to $31.06 from its close of $21.52 on Tuesday. Endo has only gained about 5% to $68.35 from its previous close of $65.17. Upon this announcement, QLT shares fell as far as 15% in the premarket.

Endo has a price target of $75.35 and a 52-week trading range of $43.12 to $82.16. Auxilium has a price target of $28.33, and its 52-week trading range is $16.36 to $32.89.

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