Cosmo deal dies due to new U.S. rules

• Salix Pharmaceuticals Ltd., citing a “changed political environment,” said on Friday it had scrapped a deal with Italy’s Cosmo Pharmaceuticals SpA that would have allowed it to shift its tax base from the United States to Europe.

The deal termination came less than two weeks after the U.S. Treasury Department took a series of steps to curb inversion deals that let companies avoid U.S. taxes by reincorporating abroad.

Raleigh, N.C.-based Salix, which makes drugs for gastrointestinal disorders, said in July it would merge with Cosmo’s Irish subsidiary. Since then, it has faced pressure from top shareholders to cancel the deal and instead sell itself to a larger drugmaker.

“The changed political environment has created more uncertainty regarding the potential benefits we expected to achieve,” Salix chief executive Carolyn Logan said.

In recent months, Salix has also been pursued by Allergan Inc. as the Botox maker seeks to fend off a US$53billion hostile takeover offer from Valeant Pharmaceuticals International Inc., people familiar with the matter have said.

But the discussions have stalled, partly due to Allergan shareholders’ opposition to a defensive acquisition, these people said this week, requesting anonymity because the matter is not public.

While Salix also made contact with Actavis PLC about a possible sale, that drugmaker sees the company’s valuation of nearly US$10-billion as high, making it uncertain if a deal would happen, the people said.

Salix, Allergan and Actavis representatives were not immediately available to comment on Friday.

Salix, which would pay Cosmo a breakup fee of US$25million, was among at least 10 U.S. companies that have sought inversion this year to cut their tax bills and gain access to foreign earnings.

The increasingly popular strategy, which hit a record number this year, has drawn the ire of the U.S. Treasury, which announced measures that would make inversions more difficult to do and less economically appealing.