Paulson & Co. is supportive of Valeant Pharmaceuticals $ 158 a share takeover of Salix Pharmaceuticals, after the merger focused hedge fund added to its bets on the consolidation of the pharmaceutical sector in the fourth quarter by taking a top position in Salix.
The hedge fund called Sunday's deal "very accretive to Valeant," while it also said the merger "removes near term uncertainty for Salix." In recent months, Paulson & Co. took an accounting restatement by Salix as an opportunity to build a leading 9.11% stake in the drug maker. The John Paulson-run hedge fund also holds 520,700 Valeant shares.
"Valeant gets rewarded with a high growth business at a reasonable price by acting quickly in this transitional period for Salix," Paulson & Co. added in an emailed comment to Forbes.
Paulson & Co. doubled down on the consolidating pharmaceutical sector in the fourth quarter as it closed a forgettable 2014, which included a 30%-plus drop to its highly watched Advantage Plus fund and flat-to-down performance in its merger funds.
The hedge fund's M&A bets were rattled last year after the U.S. government put a freeze on so-called inversion transactions, where companies look to use acquisitions to shift their headquarters to low tax jurisdictions. That freeze caused mergers between Shire and AbbVie, Pfizer and AstraZeneca to be cancelled, catching hedge fund investors off guard. Paulson was a top AbbVie shareholder amid its failed consolidation efforts, and the fund remains a large Shire shareholder.
Instead of exiting pharmaceuticals amid the government's unease with inversion deals, Paulson & Co. decided that it presented an opportunity to further invest in the sector. About broken mergers that weighed on 2014 performance, Paulson said in a recent investor update, "we believe some of these events will not impact the ultimate outcome of our positions and, in some cases, we capitalized on the volatility by adding to the positions at a lower cost basis."
Paulson & Co. added to its holdings of Shire, an Irish domiciled drugmaker that recently announced a $ 5.2 billion takeover of NPS Pharmaceuticals, in the third quarter. As Reuters first reported, the hedge fund also began building a top stake in Salix Pharmaceuticals in the fourth quarter. Last week, the hedge fund disclosed a 9.11% stake in the company.
Those merger bets are likely to help Paulson bounce back from a weak 2014.
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