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Salix scraps inversion-based deal to buy Cosmo

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Treasury nails another one.Hisham Ibrahim--Getty Images

Salix Pharmaceuticals Ltd (SLXP) and Swiss-listed Cosmo Pharmaceuticals SpA said they have terminated their merger agreement, citing a “changed political environment”.

Raleigh, N.C.-based Salix, which makes drugs for gastrointestinal disorders, said in July it would merge with Cosmo’s Irish subsidiary, a deal that would allow Salix to move its tax domicile abroad in a practice known as inversion.

The Obama administration took several actions last month to curb “inversion” deals that allow companies to escape high U.S. taxes by reincorporating abroad.

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

Reuters reported last month that some of the top 20 investors at Salix are threatening to vote down a proposed deal to buy a unit of Cosmo Pharmaceuticals, and are pressing Salix
to consider selling itself instead.

“The deal with Salix showed the potential of three products of ours for U.S.. The development path of the pipeline continued in the meantime, so this termination has no effect on value
creation,” said Cosmo CEO Alessandro Della Cha.

Cosmo is best known for two drugs to treat ulcerative colitis, a chronic disease that causes inflammation and sores in the lining of the large intestine.

Salix said it will pay Cosmo a break-up fee of $25 million.

Salix has been in contact with Actavis Plc about a potential sale to the larger drugmaker, even as Salix continues discussions with Allergan Inc (AGN) about selling itself.