Salix Pharmaceuticals Ltd. (SLXP) agreed to combine with an Ireland-based unit of Cosmo Pharmaceuticals SpA (COPN.EB) in an inversion deal that is expected to come with tax benefits.

Inversion deals -- in which a U.S. company buys a foreign target and adopts its home country's domicile and lower tax rate or establishes a holding company in a country with a low tax rate -- have become bigger and more popular lately.

The U.S. company also expects to enhance its position in treatments for gastrointestinal disease and disorders and expand its product pipeline. Salix will become a wholly owned subsidiary of Irish domiciled Cosmo TechnologiesLtd. and change its name to Salix Pharmaceuticals PLC.

Under the deal, which is expected to close in the fourth quarter, Salix shareholders will receive one share of Salix Pharmaceuticals PLC in exchange for each share of Salix Pharmaceuticals Ltd.

Salix holders are expected to have a slightly less than 80% stake in the combined company, while Cosmo holders will have a stake of slightly more than 20%.

Salix's current officers and management will remain in place. The combined company's board will include Salix's current board plus a board member designated by Cosmo.

Salix expects the transaction will give a modest boost to its per-share earnings in 2016 and be increasingly accretive afterward.

Salix plans to provide more details in a conference call set for Tuesday at 6 p.m. New York time.

Write to Tess Stynes at tess.stynes@wsj.com

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(END) Dow Jones Newswires

July 08, 2014 18:25 ET (22:25 GMT)

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