Why Salix’s CEO Departure Could Signal a Sale

Wall Street Journal

Maureen Farrell

Jan 05, 2015

It’s been a tumultuous year for Salix Pharmaceuticals Ltd.SLXP +3.59% — an announced sale, a called-off sale, a possible sale, sales talks called off, and then the announcement of major supply issues — but the news that its CEO plans to retire in late January now has analysts speculating that Salix might once again be ready to put itself on the block.
Salix CEO Carolyn Logan’s announcement comes two months after the company revealed that wholesalers had many more months worth of its drugs in inventory than Wall Street expected, meaning that actual use of its drugs wasn’t as high as they’d believed. That news was accompanied by the resignation of Chief Financial Officer Adam Derbyshire and prompted the company to lower its earnings guidance.
Ms. Logan, 66, had served as CEO since 2002. She’ll also be stepping down from the board. The company hired a search firm to find a replacement. Salix Chairman Tom D’Alonzo will fill her role until her successor is found.
Analysts didn’t seem to be publicly expressing surprise about the turn of events. Instead they’re asking whether it means Salix will once again try to sell itself.
Don Bilson, an analyst at the event-driven research firm Gordon Haskett, wrote in a note: “We suppose Logan’s retirement could be seen as another move to draw buyers out. Or to be more specific, draw them forward into this period where Logan is gone and a new CEO has not yet been named.”
Shibani Malhotra, an analyst at Sterne Agee, speculated in a research note that Ms. Logan’s retirement as CEO and from the company’s board could make Salix an easier target for potential acquirers.
Ms. Logan’s departure is the latest turn of events in a busy year for the company. Salix last year announced a $2.7 billion merger with the Italian parent company of the drug maker Cosmo Technologies Ltd., which was inked as an inversion deal that would have moved its headquarters out of the U.S. to a lower tax jurisdiction. That deal was called off after the U.S. Treasury enacted new rules to make inversions less advantageous for tax purposes.
Salix was later in talks with Botox-maker Allergan Inc.AGN +2.33% about a possible takeover in late 2014, as Allergan was seeking an acquisition as a way to ward off a hostile-takeover from Valeant Pharmaceuticals International Inc.VRX.T +1.59%, according to WSJ reports. Instead, Allergan ultimately sold itself to Actavis Inc.ACT +3.90% for $66 billion.
Salix’s stock, which moved up 0.9% in recent trading Tuesday, has recovered some of the steep sell-off that followed the news of the accounting issues. As of October 2014, Salix’s stock traded around $144 per share but dropped as low as $91.47. Its shares traded as high as $117.70 Tuesday.