Valeant and Biovail have announced they will merge and form a new company called Valeant Pharmaceuticals International, which will focus on neurological, dermatological and generic medicines.

The combined company will have an expanded presence in the US and operations in eight other countries.

Immediately prior to the closing of the merger, Valeant stockholders will receive a one-time cash dividend of $16.77 per share, and 1.7809 shares of Biovail common stock in exchange for each share of Valeant common stock they own.

The transaction is intended to qualify as a tax-free reorganisation for Valeant stockholders.

It is expected that the merger will be completed before the end of 2010. Biovail stockholders will own approximately 50.5% of the combined company, and Valeant stockholders will own approximately 49.5%.

To finance the transaction, the companies have secured a commitment of $2.8bn through a term loan facility provided by Goldman Sachs, Morgan Stanley and Jefferies & Company.