Suitor for Skin-Care Firm Rubs In an Improved Offer

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Obagi Medical Products Inc., the Long Beach manufacturer of physician-dispensed skin care products that has been the subject of a pitched takeover battle, said last week that its initial suitor had upped its offer to purchase the company.

Valeant Pharmaceuticals International Inc. of Montreal raised its bid to $24 a share – a 22 percent increase over its initial offer – after Merz Pharma Group, a Frankfurt, Germany, dermatological drug maker, made what Obagi described as an unsolicited $22-a-share offer. Valeant’s original offer of $19.75 a share came March 20.

The Obagi board has approved Valeant’s new offer and recommended that stockholders tender their shares in favor. The offer will expire April 23.

But the bidding might not be over. Shares of Obagi closed April 3 at $25.19, above the most recent bid, rising more than 27 percent for the week and making it one of the top gainers on the LABJ stock index. (See page 32.)

In a statement, Merz said it had been in ongoing talks with Obagi prior to the announcement of the first Valeant offer, and was unaware that Obagi was planning to sign a deal with another company so quickly.

Obagi investors have long pushed the company to seek a buyer, but executives have apparently rejected previous offers. Analysts said the company was finally ready to sell after a competitor, Carlsbad’s SkinMedica Inc., was purchased by Irvine pharmaceutical giant Allergan Inc. That purchase gave Obagi a much bigger competitor, and a pressing reason to sell.

Obagi products can be used after cosmetic surgery or to address signs of acne, aging and sun damage. It reported $120 million in sales last year. Merz, which makes prescription and over-the-counter treatments for neurological and metabolic disorders as well as dermatology uses, said Obagi would be a natural fit that would diversify its dermatology portfolio and expand its presence in the United States.

Merz had not commented on the counteroffer from Valeant at press time.

For Valeant, Obagi represents not only a source of new products, but also a way to expand in the market for physician-dispensed products. That market is growing at about 7 percent per year, according to analysts’ estimates, and Valeant hopes to cash in on Obagi relationships with thousands of physicians.

Obagi, which faced a $16.2 million termination fee in the initial deal with Valeant, agreed to raise the fee to $21 million in exchange for the higher offer.

Staff reporter Deborah Crowe contributed to this report.

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