Endo Health will spend about $1.6 billion US to buy the Canadian specialty drug maker Paladin Labs, based in Montreal, and both will then be folded into a newly-formed Irish holding company.
Malvern, Penn.-based Endo is offering 98 per cent of the sale price in shares, with Paladin valued at $77 a share, a 20 per cent premium on its current share price of $63.91.
Endo says Paladin will keep operating in Montreal as a separate company under existing management, but it has plans to expand within Canada.
Endo, a maker of painkillers facing declining revenue for its main treatments, posted better-than-expected third-quarter results Tuesday and issued strong profit guidance for the year. Endo shares soared 20 per cent $45.35 US in premarket trading.
Endo wants to accelerate its expansion at home and abroad and the acquisition of Paladin is expected to immediately boost profit in 2014.
Cost savings related to the acquisition are expected to total at least $75 million a year, Endo said.
Paladin Labs shareholders will receive 1.6331 shares of New Endo stock and $1.16 Cdn in cash, subject to adjustment, for each Paladin Labs share they own upon closing.
Paladin shareholders will also receive one share of Knight Therapeutics Inc., a newly formed Canadian company that is being split off to hold Impavido, a Paladin Labs' product for the treatment of leishmaniasis..
Investors in Endo Health Solutions Inc., which is based in Malvern, Pa., will receive one share of stock in the new Irish company, for each of their Endo shares.
When the deal closes, current Endo shareholders will own about 78 per cent of the new company, while Paladin shareholders will own the rest. The new company will be led by Endo's current management team.
Paladin produces treatments for pain, urology and allergy, and it has a strong pipeline of new product launches set to take place over the next 12 months, Endo said.
Endo said its third-quarter net income fell 25 per cent, pulled down by hefty charges related to product liability claims and business impairment charges.
The company earned $40.2 million, or 33 cents per share, down from $53.8 million, or 45 cents per share, in the same quarter of 2012. Excluding one-time items, the company posted a profit of $160.7 million, or $1.34 per share, for the recent quarter.
Revenue fell five per cent to $715 million from $750.5 million.
Analysts, on average, expected a profit of $1.10 per share on $693.9 million in revenue, according to FactSet.
For the full year, Endo expects to post an adjusted profit of $4.60 to $4.75 per share on $2.75 billion to $2.8 billion in revenue. Analysts expect a profit of $4.54 per share on $2.8 billion in revenue.