Canada’s Biovail Corp and Valeant of the USA are to merge in a deal valued at around $3.3 billion.

The reverse takeover will create a new entity, called Valeant Pharmaceuticals International, and under the terms of the deal, Valeant stockholders will receive a special cash dividend of $16.77 per share and 1.7809 shares of Biovail common stock for each share of Valeant common stock they own. The transaction is intended to qualify as a tax-free reorganisation and upon the completion of the merger, which is expected to occur before the end of the year, Biovail stockholders will own approximately 50.5% of the combined company.

The new firm will create “a leader in specialty pharmaceuticals” which would have had total revenues of $1.75 billion for the year ended March 31. The companies said the deal, which values Biovail at a 15% premium, would be cash earnings per share accretive to both sets of shareholders within one year of the deal closing, with planned annual savings of at least $175 million in synergies in the second year.

The combined company says it will have “a significantly expanded presence in North America and operations in eight other countries, working across four growth platforms - specialty central nervous system drugs, dermatology, Canada and emerging markets/branded generics. Chris Schott, an analyst at JPMorgan, issued a research note saying that Biovail’s favourable tax structure and Valeant’s international reach should create “a specialty pharmaceutical company with broad global reach, combined revenues of close to $1.8 billion annually, and limited patent exposure”.

The companies have secured a commitment of $2.8 billion to finance the deal from Goldman Sachs, Morgan Stanley and Jefferies & Co. The new Valeant will be headquartered in Mississauga, Ontario, and will remain a Canadian domiciled group, listed on both the Toronto and New York Stock Exchanges. Michael Pearson, currently chairman and chief executive of Valeant, will serve as CEO, residing in Barbados, and Bill Wells, Biovail’s CEO will be the non-executive chairman.