MONTREAL – Valeant Pharmaceuticals could be headed for a bidding war to acquire Obagi Medical Products after increasing its friendly takeover bid in response to an offer from a German-based rival.

Montreal-based Valeant (TSX:VRX) upped its all-cash bid Wednesday to US$24 per share from US$19.75 a day after Merz Pharma Group announced its bid of US$22 per share following months of talks.

Valeant’s higher price values the equity of the U.S. maker of skin care products at about US$418 million.

Obagi (Nasdaq:OMPI) said its board of directors unanimously approved the amended transaction with Valeant and recommended that shareholders tender to the new offer.

“We will not chase this asset forever if it gets too expensive, but we do see a lot of value at this point,” Valeant spokeswoman Laurie Little wrote in an email.

She said California-based Obagi has a strong reputation in physician dispensed products, which is a natural complement to Valeant’s dermatology offerings.

“In addition, we have international operations that we could introduce these products into. The acquisition would continue to build our presence in dermatology, an area of which we are very focused.”

The expiration date for the new, higher offer remains unchanged at midnight eastern time April 23 and is conditional on a majority of Obagi shares being tendered.

The new bid represents a 56 per cent premium from Obagi’s closing price on March 19, a day before Valeant’s initial offer was announced.

In a letter to Obagi’s board, Merz Pharma GmbH chief executive Philip Burchard said he was “surprised” and “disappointed” by the announcement of the initial deal with Valeant given that it had been engaged in ongoing discussions since January about a potential transaction.

“Unfortunately, we were not made aware that Obagi was contemplating signing a deal with another party on an accelerated timeframe and were never asked for our best and final bid or provided a bid date by which you were going to collect bids from other parties,” he wrote on Tuesday, prior to Valeant’s higher bid.

“Nonetheless, we remain resolute in our objective to acquire Obagi.”

The company hasn’t responded to Valeant’s higher offer and didn’t immediately respond to requests for comment.

Burchard said Obagi is “a natural fit for Merz” because of its own injectable products, adding that the combination would expand its U.S. market presence and diversify its dermatology portfolio by adding additional quality skin care options.

The Merz Group employs 2,391 people around the world and generated about $1.2 billion of revenues in its most recent fiscal year. Founded in 1988, Obagi earned US$16.6 million on US$120.7 million of sales last year.

Valeant, formerly Biovail Corp., develops, manufactures and sells a broad range of pharmaceutical products primarily in the areas of dermatology, neurology and branded generic drugs.

The company, which has some 7,500 employees around the world, posted a $116-million loss last year even though its revenues surged 44 per cent to $3.55 billion amid a string of acquisitions.

Obagi’s shares gained nearly 10 per cent in Wednesday trading, rising $2.19 at US$25.07 on Nasdaq. On the Toronto Stock Exchange, Valeant’s shares rose one cent to $76.49.