Endo Health Solutions, a US-based specialty healthcare company, has reached a definitive agreement to acquire Paladin Labs Inc., a leading Canada-based specialty pharmaceutical company, in a stock and cash transaction valued at approximately $1.6 billion of which approximately 98 per cent will be paid in shares of stock as described below.  

The acquisition accelerates Endo's strategic transformation to a leading global specialty healthcare company and creates a platform for future growth in North America and internationally.  Pursuant to the acquisition, each of Endo and Paladin Labs will be acquired by a newly-formed Irish holding company ("New Endo").  At $77.00 (CAD) per Paladin Labs share, the transaction represents a 20% premium to Paladin Labs' share price of $63.91 as of November 4, 2013, and is expected to be immediately accretive to Endo's 2014 adjusted earnings per share.

"The acquisition of Paladin Labs accelerates Endo's transformation from an integrated health solutions company to a top tier global specialty healthcare leader," said Rajiv De Silva, president and CEO of Endo.  "Together with our sharpened focus, lean operating model and improved execution within our core businesses, strategic acquisitions will continue to play a key role in maximizing our growth potential and cash flow generation to drive future value for Endo shareholders.  Paladin Labs has a proven track record of acquiring and in-licensing innovative new products, and developing international growth platforms.  Paladin Labs' stable and growing cash flows and strong Canadian franchise complement our existing portfolio and further diversify our pharmaceutical product mix and geographic reach.  The compelling financial and operational platform we are creating through this combination will leave the new Endo well positioned to continue to offer products that make a difference in the lives of patients while generating superior growth and returns for our shareholders."

"The transaction with Endo provides Paladin Labs shareholders an attractive current premium for their shares while allowing for ongoing participation in the upside potential of the combined company," said Jonathan Ross Goodman, chairman and founder of Paladin Labs. "We are confident that our 17 years of consecutive record revenues will continue unabated under Endo's stewardship.  With a relentless focus on execution, talented and tenacious people, and a proven strategy, Paladin Labs has become one of Canada's leading publicly traded pharmaceutical companies."

Paladin Labs is a specialty pharmaceutical company focused on acquiring or in-licensing innovative pharmaceutical products for the Canadian and world markets.  With over 60 marketed drugs, proven sales and marketing capabilities, and strong partnerships with leading global pharmaceutical companies, Paladin Labs has a track record of enhancing the performance of existing and newly acquired products.  Key products serve growing drug markets including ADHD, pain, urology and allergy, with a strong pipeline of new product launches over the next 12 months.  In addition to its Canadian operations, Paladin Labs owns a controlling stake in Laboratorios Paladin, S.A. de C.V. in Mexico and a 61.5% ownership stake in publicly traded Litha Healthcare Group Limited in South Africa.

Following completion of the transaction, New Endo will be led by Endo's current management team.  Paladin Labs will be a separate operating company under New Endo and will continue to be led by Paladin Labs' current management team and will maintain its current headquarters location in Montreal.  Its Canadian operations will continue under the Paladin Labs name.  Operational and tax synergies as a result of the transaction are expected to total at least $75 million of after tax savings on an annual basis.  The savings are not expected to materially impact Paladin Labs' Canadian operations, and it is Endo's intention to continue to expand Paladin Labs' presence in the Canadian market.

Under the terms of the transaction, which has been unanimously approved by the boards of both companies, Paladin Labs shareholders will receive 1.6331 shares of New Endo stock and $1.16 (CAD) in cash, subject to adjustment, for each Paladin Labs share they own upon closing, pursuant to a plan of arrangement under Canadian law.  The transaction values each Paladin Labs share at $77.00 (CAD), based on the 5-day volume weighted average share price for Endo and the 5 day average currency exchange rate calculated at close of market on Friday, November 1.  Current Endo shareholders will receive one share of New Endo for each share of Endo they own at closing.  Upon closing, current Endo shareholders will own approximately 77.5% of the New Endo, and current Paladin Labs shareholders will own approximately 22.5% of the New Endo.  

In addition, pursuant to the plan of arrangement, for each Paladin Labs share owned at closing, shareholders of Paladin Labs will also receive one share of Knight Therapeutics Inc., ("Knight Therapeutics") a newly formed Canadian company that will be separated as part of the transaction.  Knight Therapeutics will hold Impavido®, Paladin Labs' product for the treatment of leishmaniasis.

The cash consideration to be received by Paladin Labs shareholders will be increased if Endo's volume weighted average share price during an agreed reference period declines more than 7%.  Cash compensation will be provided by Endo to Paladin shareholders if the share price declines more than 7% but less than 20%.  If Endo's share price declines between 20% and 24% during the agreed reference period, Endo will provide partial cash compensation to Paladin shareholders.  Any decline in Endo's share price beyond 24% will not be subject to further cash compensation to Paladin Labs shareholders.  The maximum amount by which the aggregate cash consideration to be received by Paladin shareholders would be increased by this price protection mechanism is approximately $233 million.

The company does not expect the transaction, as structured, to be taxable to US shareholders of Endo.  However, the ultimate tax treatment of the transaction is not certain, could be affected by actions taken by the company and other events, and cannot be determined until the end of the year in which the transaction is completed which Endo expects will be 2014.

Endo remains committed to a disciplined capital allocation process which is focused on growth of the base business, acquisitions and debt pay-down.  The Company is continuing to evaluate strategic alternatives for its HealthTronics business and its branded pharmaceutical early stage discovery platform. Endo will continue to review all of its businesses within the context of the company's strategic direction and capital allocation framework.

While the Paladin acquisition is primarily equity based, Endo will adjust certain parts of its capital structure to complete the transaction.  Endo has secured committed financing that will be used to refinance certain elements of the company's existing indebtedness and the early repurchase of its convertible notes due April 2015.  The repurchase of the convertible notes would be subject to market conditions.  The changes to the capital structure related to the transaction are not expected to have a material impact on the overall leverage profile of Endo.

The transaction is expected to close in the first half of 2014, subject to certain conditions and approvals, including regulatory approvals in the US, Canada and South Africa, the approval of both companies' shareholders, the approval of the Superior Court of Quebec, the registration and listing of New Endo shares and customary closing conditions.  Shareholders representing approximately 34 per cent of Paladin Labs outstanding shares have agreed to vote in favor of the transaction.  These shareholders have the right to terminate this voting agreement if Endo's volume weighted average share price declines more than 24 per cent during an agreed reference period.  Shares of New Endo are expected to trade on NASDAQ.

Deutsche Bank Securities Inc., Skadden Arps, Torys LLP and KPMG acted as advisors to Endo. Deutsche Bank and RBC Capital Markets have agreed to provide committed financing to Endo as part of this transaction.  Houlihan Lokey Financial Advisors, Inc. also acted as an advisor to Endo.  Credit Suisse, Davies Ward Phillips & Vineberg LLP, and EY acted as Advisors to Paladin Labs.

Endo Health Solutions Inc. is a US-based specialty healthcare company with four distinct business segments that are focused on branded and generic pharmaceuticals, devices and services, each providing quality products to  customers while improving the lives of patients.