Valeant buying skin-care company Obagi for $348-million

March 20, 2013

Valeant Pharmaceuticals International Inc. has struck an agreement to acquire skin-care company Obagi Medical Products Inc. for $343.8-million (U.S.)..

Valeant, Canada's largest publicly traded drug company, said it is paying $19.75 for all of Obagi's shares, representing a 28 per cent premium to Obagi's closing share price on Nasdaq on March 19.

Montreal-based Valeant says the deal should provide annual cost synergies of at least $40-million.

"The acquisition of Obagi will be a valuable supplement to Valeant's current dermatology portfolio and will further build upon our growing aesthetics franchise," Valeant chairman and chief executive officer Michael Pearson said in a news release Wednesday.

"Obagi is a leader in the physician dispensed market and enjoys a strong brand perception among physicians. The addition of their products will not only strengthen and diversify our dispensed portfolio, but also expand our market presence with dermatologists and plastic surgeons."

The transaction announcement comes after Valeant – a global leader in the cosmetic end of the dermatology business – reported a quarterly net loss as a result of acquisition-related costs.

It posted a loss of $89-million or 29 cents per share in the fourth quarter, compared with a profit of $55.9-million or 18 cents in the year-earlier period.

Valeant made more than a dozen acquisitions last year, including the $2.6-billion takeover of Medicis Pharmaceutical Corp. of Scottsdale, Ariz., a maker of skin-care products.

Valeant was formerly known as Biovail Corp.

Obagi's biggest revenue generator is the Nu Derm line of anti-aging and acne treatment products.

RBC Dominion Securities analyst Douglas Miehm said in a research note Wednesday that the Obagi deal appears to be a reasonably priced one for Valeant.

Long Beach, Calif.-based Obagi posted revenue of $120-million last year. Valeant is paying about three times sales for Obagi, slightly higher than the 2-2.5 times multiple its prefers to pay, said Mr. Miehm.

But Obagi fits neatly into Valeant's dermatology portfolio and the cost synergies from the acquisition are expected to start kicking in within six months, he said.

The deal could be 15-to25-cents per share accretive to Valeant, he said.

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