Actavis to acquire Allergan for $66B

Allergan avoids hostile takeover by Valeant, which "cannot justify" matching Actavis' $219 share price

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After seven months of increasing tender offers and pressure, Valeant Pharmaceuticals International Inc. is abandoning its pursuit of Allergan Inc. in light of Actavis plc's white-knight offer. Actavis announced a definitive agreement on Nov. 17 by which it would acquire Allergan for $129.22 in cash and 0.3683 Actavis shares for each share of Allergan stock, which comes to roughly $219 per Allergan share. All told, the deal will be worth approximately $66 billion and will create one of the top 10 global pharmaceutical companies by sales revenues, according to Actavis, with combined annual pro-forma revenues of more than $23 billion anticipated next year. Both companies' boards of directors have unanimously approved the deal, which is also supported by both Allergan and Actavis' management teams.
"This acquisition creates the fastest growing and most dynamic growth pharmaceutical company in global healthcare, making us one of the world's top 10 pharmaceutical companies," Brent Saunders, CEO and president of Actavis, said in a press release. "We will establish an unrivaled foundation for long-term growth, anchored by leading, world-class blockbuster franchises and a premier late-stage pipeline that will accelerate our commitment to build an exceptional, sustainable portfolio. The combined company will have a strong balance sheet, growing product portfolios and broad commercial reach extending across 100 international markets. Our combined experienced management team is dedicated to driving strong organic growth while capturing synergies and maintaining a robust investment in strategically focused R&D.
"This is a financially compelling transaction. With pro forma revenues in excess of $23 billion anticipated in 2015, this combination doubles the revenue generated by our brands business and doubles the international revenue of the combined company,” Saunders continued. “Management is committed to maximizing the potential for the combined company to drive industry-leading top and bottom line growth. With this combination, we plan to transform the growth profile of our pharmaceutical business and have the ability to generate organic revenue growth at a compound annual growth rate of at least 10 percent for the foreseeable future. The combination is expected to generate strong free cash flow of more than $8 billion in 2016 and substantial growth thereafter, which will enable the rapid repayment of debt. We expect that the combination will result in double-digit accretion to non-GAAP earnings within the first 12 months."
Saunders will lead the combined company, with Paul Bisaro remaining executive chairman of the board. The senior management teams of both Allergan and Actavis will lead the companies' intergration, and two members of Allergan's board of directors will be invited to join Actavis' board once the transaction is complete.
"Today's transaction provides Allergan stockholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company," said David E. I. Pyott, Chairman and CEO of Allergan. "We are combining with a partner that is ideally suited to realize the full potential inherent in our franchise. Together with Actavis, we are poised to extend the Allergan growth story as part of a larger organization with a broad and balanced portfolio, a meaningful commitment to research and development, a strong pipeline and an unwavering focus on exceeding the expectations of patients and the medical specialists who treat them. I am thankful for the hard work and dedication of our employees, and I'm confident they will make many valuable contributions to the combined company. Looking to the immediate future, all of us at Allergan are excited to roll up our sleeves and work closely with the Actavis team to ensure a smooth transition."
The deal is something of an eleventh-hour reprieve for Allergan; while the company had been resisting Valeant's $54-billion hostile takeover attempt, it was facing a deadline of a Dec. 18 special shareholder meeting, at which Valeant—and acquisition ally William Ackman, CEO of Pershing Square Capital Management, L.P.—hoped to oust a majority of Allergan's board in order to force takeover talks. A BioSpace exclusive featured an email statement from Ackman regarding the news, in which he noted that “We congratulate Actavis and Allergan on their announced transaction. As a result of the deal, we are withdrawing our special meeting request.”
Actavis' hefty price tag is past the limits of what Valeant is willing to spend, according to a press release issued by Valeant the same day Allergan and Actavis announced their transaction.
"We have seen the announcement that Allergan and Actavis have made, and while we will review any such agreement in determining our course of action, Valeant cannot justify to its own shareholders paying a price of $219 or more per share for Allergan," said J. Michael Pearson, chairman and CEO of Valeant. "Our business is performing extremely well, as evidenced by our third-quarter results, our expected strong fourth quarter and our robust outlook for 2015, and I am confident in our continued ability to generate exceptional shareholder value. We will remain focused on delivering strong organic results and evaluating acquisition opportunities as we always have: prudently, in a disciplined manner and in the best interests of our shareholders."
Without the acquisition of Allergan to focus on, Valeant followed up that announcement three days later with the news that its board had authorized a new securities repurchase program, under which the company may repurchase up to $2 billion of its senior notes, common shares and/or other securities. This program will replace Valeant's existing repurchase program, which expired on Nov. 21.
Zacks Investment Research has a positive outlook on the deal, noting that Actavis expects to see annual synergies of at least $1.8 billion starting in 2016, in addition to the $475 million previously announced by Allergan.
“The addition of several blockbuster therapeutic franchises will boost Actavis’ North American Specialty Brands business significantly. Actavis said that, on a pro-forma basis for the full year 2015, the combined company will have three blockbuster franchises (ophthalmology, neurosciences/CNS and medical aesthetics/dermatology/plastic surgery) each with annual revenues of more than $3 billion. Meanwhile, the specialty product franchises (gastroenterology, cardiovascular, women's health, urology and infectious disease) will have combined revenues of about $4 billion,” Zacks commented.

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