L’Oreal to pay $1.3B for Valeant skin care brands as drug company pays down debt

Phil Serafino and Johannes KochBloomberg

Valeant Pharmaceuticals International, the embattled Canadian drugmaker, agreed to sell about $2.1 billion in assets to get cash to streamline its businesses and begin easing its debt burden.

L’Oreal will pay Valeant $1.3 billion for three skin care brands, the Paris-based company Tuesday said in a statement. Earlier in the day, Valeant said it would sell its Dendreon Pharmaceuticals unit to closely held Chinese conglomerate Sanpower Group for about $820 million.

The agreements mark a start to Valeant’s efforts to pay down about $30 billion in debt. The Laval, Quebec-based company has been embroiled in scandals about its drugs’ high prices and accounting that led to legal and regulatory investigations along with declines in its share price. The company’s U.S. shares jumped 13 percent to $17.36 at 6 a.m. New York time in trading before U.S. exchanges opened.

“The valuation is pretty high; this is a decent price” that Valeant is getting for the skin care brands, said Rudi van Den Eynde, who helps oversee about $1 billion in assets at Candriam Investors Group, including L’Oreal shares.

Proceeds from both sales will be used to permanently repay term-loan debt under Valeant’s senior credit facility, the company said. The Sanpower transaction is expected to close in the first half of this year, while the sale to L’Oreal should close in the first quarter, according to Valeant.

L’Oreal agreed to pay a high price for the Valeant brands — CerAve, AcneFree and Ambi — to challenge rival Nestle in the medicated skin care industry, said Pierre Tegner, an analyst at Natixis in Paris. Skin care is the largest category in the cosmetics industry, accounting for more than one-third of the global market, according to data tracker MarketResearch.com.

The three brands have combined annual sales of about $168 million and will become part of L’Oreal’s Active Cosmetics Division, alongside La Roche-Posay, Vichy and SkinCeuticals, the buyer said.

“What we can see all over the world, including in the U.S., is that there’s a huge trend in using medicated skin care,” Brigitte Liberman, president of the L’Oreal division, said in an interview. “People want to be reassured by what they’re using in terms of skin care, and something developed with a health care professional is key to reassure the consumer.”

The Sanpower transaction, meantime, gives the Chinese company control over Provenge, an immunotherapy treatment for prostate cancer that is the unit’s only commercialized medicine. Buying Provenge will put Sanpower at the “cutting edge of the global precision medicine industry,” it said.

Valeant bought Dendreon out of bankruptcy in 2015 for $445 million and is selling it at a premium to that price, which is “pretty good in our view,” Irina Koffler, an analyst at Mizuho Securities USA, wrote in a report. She has an underperform rating on Valeant shares.

Started by its chairman Yuan Yafei in 1993, Sanpower owns five listed companies in China including a department store operator and several electronics makers. Real estate development, investment funds and senior-care providers are among its business ventures. A deal spree has also given it many foreign assets including Britain’s House of Fraser department-store chain.

Valeant held talks to sell its Salix gastrointestinal drugs business to Takeda Pharmaceutical, although those discussions later broke down because of disagreements over the price, Bloomberg News reported last year, citing people familiar with the matter.

Through Monday, Valeant’s U.S. shares had plunged 94 percent from their 2015 peak, cutting the company’s market value to $5.2 billion. Last year the company cut its financial forecast three times, was investigated by law enforcement and said that sales of a key product were falling.

Bloomberg’s Li Hui and Thomas Buckley contributed.


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