Valeant and Biovail announced that both companies' boards of directors have unanimously approved a definitive merger agreement under which the companies would combine to generate enhanced value for stockholders. The combined company will be called Valeant Pharmaceuticals International, Inc. (the new Valeant).

Valeant and Biovail believe the new Valeant's scale, financial strength and complementary product lines will enable it to pursue substantial growth opportunities. The combined company will have a significantly expanded presence in North America and operations in eight other countries, working across four growth platforms. The new Valeant will be able to leverage its complementary product lines and operations in specialty Central Nervous System (CNS), Dermatology, Canada and emerging markets/branded generics. In addition, the combined company will have limited patent exposure and enjoy strong and stable cash flows from legacy products that will support future growth. The new Valeant, on a 12-month trailing basis as of March 31, 2010, would have experienced double-digit revenue growth.

Under the terms of the agreement, Valeant stockholders will receive a one-time special cash dividend of $16.77 per share immediately prior to closing of the merger and 1.7809 shares of Biovail common stock upon closing of the merger in exchange for each share of Valeant common stock they own. The transaction is intended to qualify as a tax-free reorganization for Valeant stockholders. Upon the completion of the merger, which is expected to occur before the end of the year, Biovail stockholders will own approximately 50.5 per cent and Valeant stockholders will own approximately 49.5 per cent of the shares of the combined company on a fully diluted basis. For Biovail stockholders, this transaction represents a 15 per cent premium based on a calculation of the stock prices over the last 10 trading days. It is anticipated that by December 31, 2010, contingent upon the closing of the merger and subject to approval by the new Valeant's Board of Directors and to applicable law, the combined company will pay an additional one-time $1.00 per share dividend to all stockholders of the new combined entity, after which the new Valeant does not intend to pay dividends. To finance the transaction, the companies have secured a commitment of $2.8 billion through a term loan facility provided by Goldman Sachs Bank USA, Morgan Stanley & Co. Incorporated, and Jefferies & Company, Inc. Existing Valeant 7.625% and 8.375% senior unsecured notes will be refinanced as part of the transaction.

J Michael Pearson, currently chairman and chief executive officer of Valeant, will serve as the new Valeant's chief executive officer, residing in Barbados, and Bill Wells, currently chief executive officer of Biovail, will be the non-executive chairman. The new Valeant's board of directors will consist of 11 members, including five Biovail representatives, five Valeant representatives and one additional independent Canadian resident director to be identified through a search process and nominated by Valeant and agreed upon by Biovail. Robert A. Ingram, currently lead director of Valeant, will serve as lead independent director of the new Valeant's Board. Michael Van Every, currently chairman of Biovail's Audit Committee, will serve in the same function for the combined Board.

The new Valeant will retain Biovail's corporate structure and related financial efficiencies, leading to enhanced financial performance. Following the completion of the merger, it is anticipated that the transaction will be cash EPS accretive to both companies' stockholders within the first 12 months post-close. On a trailing 12-month basis as of March 31, 2010, the combined company would have had pro forma revenues of $1.75 billion and pro forma cash flow from operations of $575 million. The new Valeant expects to generate at least $175 million in annual cost synergies in the second year.

Pearson said, "This compelling combination will create tremendous value for stockholders of both companies as our business benefits from cost savings, greater scale, efficiencies from extending Biovail's corporate structure, and enhanced financial strength and flexibility. We are committed to delivering the anticipated cost savings benefits and, as we did with Valeant over the past two years, transforming the new entity into a diversified, specialty pharmaceutical company focused on growth and cash flow generation."

Dr Douglas J P Squires, chairman of the Biovail board of directors, said, "The combination of Biovail and Valeant creates a new leader in specialty pharmaceuticals by combining two highly successful management teams in our industry. Our Board is enthusiastic about the opportunities the combination will bring for shareholders and employees of both companies."

Wells added, "With strong cash flows, substantial synergy opportunities and minimal patent risk, the new Valeant presents the opportunity to create shareholder value at a level that would not have been possible for either company on a stand-alone basis. Moreover, the combined company will preserve the advantageous Biovail corporate structure."

G. Mason Morfit, chairman of Valeant's Special Committee and Partner at ValueAct Capital, Valeant's largest stockholder, said, "I am excited about the significant benefits this transaction delivers to stockholders of both companies. The merger of Valeant and Biovail creates more opportunities to continue the financial performance Valeant stockholders have enjoyed over the past two years and creates an exciting platform for continued aggressive growth. ValueAct Capital is committed to keeping Valeant as a top position in our portfolio and to voting for this transaction. Once the merger is complete, ValueAct Capital will be the largest stockholder of the combined company, and I will serve on its board of directors."

Following completion of the merger, the new Valeant will be headquartered in Mississauga, Ontario and will remain a Canadian domiciled corporation, listed on both the Toronto and New York Stock Exchanges. In addition, the combined company will retain Biovail's existing principal operating subsidiary in Barbados, which will continue to own, manage, control and develop intellectual property for the combined company. The location of the combined company's US headquarters will be determined after the close of the transaction.

The transaction is subject to approval by Valeant and Biovail stockholders and the satisfaction of customary closing conditions and regulatory approvals, including anti-trust and competition law approvals in the US and certain other foreign jurisdictions.

Goldman, Sachs & Co. and Jefferies & Company, Inc. are serving as financial advisors, and Skadden, Arps, Slate, Meagher & Flom LLP and Ogilvy Renault LLP are serving as legal counsel to Valeant. Morgan Stanley & Co. Incorporated is serving as financial advisor and Cravath, Swaine & Moore LLP and Blake, Cassels & Graydon LLP are serving as legal counsel to Biovail.

Valeant Pharmaceuticals International is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of neurology and dermatology.

Biovail Corporation is a specialty pharmaceutical company engaged in the formulation, clinical testing, registration, manufacture, and commercialization of pharmaceutical products. The company is focused on the development and commercialization of medicines that address unmet medical needs in niche specialty central nervous system (CNS) markets.