Allergan, which for months has been trying to fend off a $53 billion hostile takeover offer from Valeant Pharmaceuticals International Inc., is now in advanced talks to buy Salix Pharmaceuticals Ltd. in an all-cash deal, some of the people said.
An Allergan acquisition of Salix, likely valued at more than $10 billion, could be announced late this week or next, some of the people said. The talks, which have been on and off before, could fall apart again.
Salix has already agreed to merge with a unit of Italy's Cosmo Pharmaceuticals SpA and plans to locate the combined company in Ireland for tax purposes. An agreement with Allergan would likely halt that deal, which is already in danger of getting voted down by Salix shareholders, people familiar with the matter said.
Actavis, meanwhile, lobbed in an all-cash offer for Allergan last month, one of the people said. The amount of the bid couldn't be learned, but it is likely at least in the neighborhood of Allergan's current market capitalization of roughly $50 billion. According to one of the people, Allergan rejected the offer in part because it is focused on sealing a deal with Salix, which could make Allergan too big and complicated for Valeant to buy.
Actavis remains interested in an acquisition of Allergan, but only if it is friendly, one of the people said. As part of its approach, Actavis pledged to maintain Allergan's investment in research and development, in contrast to Valeant, which has indicated it would cut back on such spending should its bid succeed.
Allergan of late has made no secret of its desire to do an acquisition of its own, and The Wall Street Journal reported in August that it had approached Salix, a North Carolina company specializing in drugs for gastrointestinal conditions that now has a market value of $10.3 billion. Allergan believes the deal could add significantly to its per-share earnings, one of the people said.
By paying for Salix with cash, Allergan could obviate the need for a shareholder vote on the deal, lessening the ability of its shareholders to choose between an acquisition and a sale of the company.
News that the two companies are close to sealing a deal, and Actavis's entry into the fray, deepen the intrigue surrounding Allergan, a once-sleepy maker of eye drops that under Chief Executive David Pyott generated $6.3 billion in total revenue last year.
That a deal with Salix could be imminent is also bound to inflame tensions between Valeant and Allergan. The two companies have been sparring publicly and in court since Valeant in April launched its cash-and-stock bid in conjunction with activist investor William Ackman.
Allergan shareholders are slated to vote Dec. 18 on whether to oust a majority of its board—at a meeting sought by Valeant and Mr. Ackman. Valeant and Pershing Square Capital Management LP, Mr. Ackman's hedge fund, want to install directors who would be more likely to approve the deal and rallied the support of more than 35% of Allergan shares to hold the meeting. They will need at least another 15% to win the board vote.
Allergan, meanwhile, has sued to disqualify Pershing Square's own 9.7% Allergan stake on the grounds it was accumulated in violation of insider-trading laws. Pershing Square and Valeant have said the trading was legal. That case is pending.
Once a small maker of generic women's-health drugs, Actavis has been bulking up in recent years, in July paying $25 billion for Forest Laboratories Inc. Actavis, based in Ireland, has indicated it plans to continue doing deals even as it seeks to grow its own sales to more than $15 billion next year.
Its desire to buy Allergan could pit the company against Valeant, another serial deal maker that it discussed combining with last year, people familiar with the matter said at the time. It also adds another layer of complication for Allergan shareholders, who are already facing the possibility of two radically different deal options.
Actavis is developing a portfolio of generic and branded drugs with a range of prices aimed at appealing to hospitals and other big drug buyers, CEO Brent Saunders and Executive Chairman Paul Bisaro said in a June interview. Both men said their company was taking a different tack than Valeant, by making major investments in developing new drugs and in marketing of brands.