Salix to Move to Ireland in $2.7 Billion Cosmo Tax Inversion

Jul 09, 2014 4:13 pm ET

(Updates with closing shares in 10th, 11th paragraphs.)

July 9 (Bloomberg) -- Salix Pharmaceuticals Ltd. agreed to buy patents to three gastrointestinal drugs from Cosmo Pharmaceuticals SpA for about $2.7 billion in stock, allowing the U.S. company to move to Ireland and lower its tax bill.

Salix, of Raleigh, North Carolina, will merge with an Irish unit of Lainate, Italy-based Cosmo, the companies said yesterday in a statement. Salix shareholders will own just less than 80 percent of the combined company, which will be renamed Salix Pharmaceuticals Plc, and Cosmo will own the rest.

The transaction adds to the wave of U.S. companies gaining an overseas address as a way to lower their tax rates. AbbVie Inc. is bidding for Shire Plc for to execute a similar tax inversion. With the deal, Cosmo is reversing its decision to try to market some products on its own in the U.S.

“It’s a very good deal because first of all you get these shares which are valuable and are real currency, and on the other hand the company retains the rights outside of the U.S.,” said Friedrich von Bohlen, managing director of Dievini Hopp Biotech Holding GmbH, Cosmo’s second-largest shareholder. “It’s a leapfrog into the U.S. market without any incremental costs.” Von Bohlen is also a member of Cosmo’s board.

U.S. Patents

Salix will gain Cosmo’s U.S. patents for Uceris, a treatment for ulcerative colitis, the experimental antibiotic rifamycin MMX and methylene blue MMX, an experimental dye for detecting pre-cancerous lesions in the colon. Salix also will have first right of refusal over any gastrointestinal drugs that Cosmo seeks to market in the U.S.

Salix’s executives will continue to lead the new company, and Cosmo can appoint one board member. For the combined company to be based in Ireland, the deal is structured so that Cosmo’s Irish subsidiary, Cosmo Technologies Ltd., buys Salix. Stockholders in Salix will receive one share of the new company for each Salix share.

The structure “greatly enhances our ability to compete for licensing deals and acquisitions,” Salix Chief Executive Officer Carolyn Logan said in the statement.

Cosmo will own about 19.4 million shares of Salix after the deal closes, Cosmo Chief Financial Officer Chris Tanner said in a telephone interview today. Based on yesterday’s closing share price for Salix, that stake is valued at $2.7 billion.

Biggest Shareholders

Cosmo Chairman Mauro Ajani founded the company and owns about 48 percent of the shares. Dievini, a health-care investment firm co-founded by von Bohlen with Dietmar Hopp, the billionaire co-founder of SAP AG, owns 9.9 percent.

Cosmo jumped 7.8 percent to close at 179.10 Swiss francs in Zurich, giving the company a market value of 2.7 billion francs ($3 billion). The stock has almost tripled in the past year.

Shares of Salix fell 2.9 percent to $133.29 at the close in New York, resulting in a market value of $8.5 billion.

New York-based Pfizer Inc. bid $117 billion this year in a tax-inversion push for London-based AstraZeneca Plc, a deal that collapsed in a price dispute. Medtronic Inc., a medical-device maker based in Minneapolis, said June 15 it would buy Covidien Plc and take the legal residence of the Dublin-based company.

Bank of America Merrill Lynch advised Salix, as did the law firms Cadwalader, Wickersham & Taft LLP and A&L Goodbody. Covington & Burling LLP advised Salix on licensing and supply agreements between Salix and Cosmo. Cosmo’s banker was Jefferies International Ltd., and its legal advisers were Procopio, Cory, Hargreaves & Savitch LLP and Byrne Wallace.