Malvern-based Endo Health Solutions Inc. said Tuesday it would pay $1.6 billion for Canada's Paladin Labs Inc. to expand in that country and gain a foothold in South Africa, Mexico, and Brazil.
Shares of Endo, which announced in August it would buy Boca Pharmacal, a private maker of generic medicines, surged 28.8 percent to close at $56.22, a new high.
"The beauty of this transaction is the complementary nature of the two companies," Endo chief executive officer Rajiv de Silva told investors. "We don't really overlap in any geographies."
Endo and Paladin will form an Irish holding company, to be called New Endo, of which Paladin shareholders will own 22.5 percent and Endo shareholders will own 77.5 percent. The holding company will be "domiciled" in Ireland, because of its low corporate tax rate.
Endo's U.S. headquarters will remain in Malvern, where about 400 are employed.
Endo expects the acquisition to generate at least $75 million of after-tax savings annually after the deal closes in the first half of 2014.
Paladin will retain its Montreal headquarters and operate under the Paladin Labs name in Canada. Paladin sells more than 60 drugs to treat conditions including attention deficit hyperactivity disorder, pain, urological disorders, and allergies.
"Paladin will diversify our revenues within our branded pharmaceutical segment through geographic expansion and product diversity," de Silva said. "Finally, this deal further accelerates our M&A agenda and enhances our capital structure and cash conversion."
Currently, Endo has divisions that make brand-name and generic pharmaceuticals and medical devices. Its leading painkillers Lidoderm and Opana ER have lost patent exclusivity. The American Medical Systems device unit faces thousands of lawsuits from women who had problems with vaginal-mesh implants.
The acquisition, primarily through stock, valued each Paladin Labs share at $77 Canadian dollars, a 20 percent premium to the Nov. 4 closing price of $63.91.
Leerink Swann analyst Jason Gerberry said the price "looks somewhat expensive" but will be "immediately accretive" and the tax benefits "are likely greater than comparable deals."
Moody's Investor Service said the acquisition was "credit positive," but the ratings outlook remained "negative" because of recent senior management changes, uncertainty about future M&A activity, and "rising exposure to surgical mesh litigation cases."
Endo also reported a third-quarter profit Tuesday that beat analysts' estimates, and raised its 2013 forecast. Excluding one-time items, earnings were $1.34 a share on $715 million in revenue, above analysts' $1.11 a share average estimate. Net income declined to $40.2 million, or 33 cents, from $53.8 million, or 45 cents a share from a year earlier.
The company forecast 2013 profit of $4.60 to $4.75 a share, from a previous projection of up to $4.55.