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Valeant to Buy Obagi Medical

Zacks Equity Research

Valeant Pharmaceuticals International, Inc. (VRX) recently announced that the company has entered into a definitive agreement to acquire all of the outstanding common stock of Obagi Medical Products, Inc. (OMPI) for $19.75 per share in cash.

The offer price represents a 28% premium to Obagi's closing share price on Mar 19, 2013. Valeant Pharma expects to close the transaction, which has been approved by Obagi’s board, in the first half of 2013.

The acquisition is expected to be immediately accretive to Valeant Pharma’s cash earnings per share. Valeant Pharma also expects the acquisition to generate cost synergies of $40 million on an annual basis within six months of closing.

Obagi develops markets and sells products, which prevent or improve the most common and visible skin disorders. With leading dermatology brands such as Obagi Nu-Derm, Condition & Enhance, Obagi-C Rx, ELASTIDerm and CLENZIDerm in its portfolio, Obagi has grown its revenues from $35.6 million in 2001 to $120.7 million in 2012.

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Valeant Pharmaceuticals, a Canada-based specialty pharmaceutical company, develops, manufactures and markets multiple pharmaceutical products primarily in the fields of dermatology, neurology and branded generics.

Hence, the impending acquisition of Obagi is a strategic fit for Valeant Pharma, which will further augment and diversify its product portfolio.

We note that acquisition activity has been quite strong in recent times in the dermatological segment. In Dec 2012, Valeant Pharma acquired the entire outstanding common stock of Medicis Pharmaceutical Corporation for approximately $2.6 billion.

The erstwhile Medicis Pharma focused on the development and marketing of products for the treatment of dermatological and aesthetic conditions in the US.

In addition, Valeant Pharma closed the acquisition of Russia-based Natur Produkt International, JSC for $163 million in Feb 2013

On the other hand, Allergan, Inc. (AGN) acquired privately-held SkinMedica, Inc. in Dec 2012 with a focus on the latter’s topical aesthetics skin care business.

Valeant Pharmaceuticals currently carries a Zacks Rank #3 (Hold). Right now, Furiex Pharmaceuticals Ltd. (FURX) is better positioned with a Zacks Rank #2 (Buy).

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