Analysis - Endo's bid for Salix shows its strategy as Valeant challenger

By Olivia Oran (Reuters) - Endo International Plc's $11 billion offer this week for Salix Pharmaceuticals Ltd , an effort to trump an agreed $10 billion bid from Valeant Pharmaceutical Inc , illustrates CEO Rajiv De Silva's plan to be seen as not just a protege of Valeant chief Mike Pearson, but as a challenger. Endo's acquisition strategy -- it has completed six deals since 2013 -- echoes that of Valeant, which is well known for buying up smaller companies to gain scale. If successful, buying Raleigh, North Carolina-based Salix would combine Endo's existing urology portfolio with Salix's gastrointestinal drugs and could lift Endo's $15 billion market cap by about $11 billion, Salix's current market value. Endo has been hunting for a major deal for at least a year, according to people close to the Malvern, Pennsylvania-based company, who requested not to be identified discussing confidential deliberations. Endo tried to buy drug and medical device maker Hospira Inc before Pfizer Inc clinched a $15 billion deal last month, these sources said. Endo also was bidding for Salix before Salix agreed to Valeant's offer of $10 billion in cash. Endo and Valeant epitomize the popular strategy of large drugmakers buying smaller companies' drugs to drive growth, rather than developing new drugs through research and development (R&D). "I think even if Endo is not successful, it sends a message that the company is a serious contender and would-be sellers should take them seriously," said Corey Davis, an analyst with Canaccord Genuity. "It shows they want to be super aggressive and should be considered a viable acquirer." Representatives for Endo and Hospira declined to comment. De Silva worked at Valeant for four years as one of Pearson's top executives and dealmakers, leaving at the end of 2012 to join Endo. Since then, De Silva, 48, has transformed Endo from a little-known healthcare services company into a speciality pharmaceutical player with double the market cap it has two years ago.. VALEANT COMPARISONS Endo last October agreed to acquire Auxilium Pharmaceuticals Inc for $2.6 billion for its men's health drug portfolio, beating out eye drugmaker QLT Inc . It also acquired generic drugmaker Dava Pharmaceuticals for $600 million last June. Still, Endo executives have stressed the company's organic growth and have been hesitant to draw comparisons with Valeant, which has been criticized for slashing research and development spending. Endo spent $154.2 million in R&D in 2014, around 5 percent of its sales, while Valeant spent around 3 percent of its sales during the same period. On average, pharmaceutical companies spend around 15 percent of their sales on R&D, according to analysts. "I think Endo and Valeant have a similar approach in how they look at the market but it's too early to tell," said Kevin Kedra, an analyst with Gabelli & Company. "I don't know if anyone wants to be called 'Valeant light', but I do think Endo does a lot of the things Valeant does that are very effective in creating value." (Reporting by Olivia Oran in New York; Editing by Greg Roumeliotis and John Pickering)