Cephalon rejects Valeant’s $5.7 billion takeover bid

Cephalon, Inc. has formally rejected the March 29 proposal from Valeant Pharmaceuticals International, Inc. to purchase Cephalon for $73 per share, for a total of approximately $5.7 billion.

Kelsey Kaustinen
FRAZER, Pa.—Cephalon, Inc. has formally rejected the March29 proposal from Valeant Pharmaceuticals International, Inc. to purchaseCephalon for $73 per share, for a total of approximately $5.7 billion. Therejection is in keeping with Cephalon's previous responses to Valeant'sovertures, as Valeant had made several private offers while seeking aconsensual process, including three letters. Cephalon's continued refusal ledto the public announcement of the takeover bid.
 
 
The Cephalon Board of Directors sent a letter to J. MichaelPearson, Valeant's CEO, detailing their refusal after analyzing the offer,deeming the offer to be inadequate and listing their reasons for refusal. Thefirst reason listed was "the Valeant non-binding proposal does not fullyreflect Cephalon's standalone value. The Board determined that Valeant'sproposed price significantly undervalues the Company, including the greatervalue obtainable from the Company's strategic plan, especially the valueinherent in the Company's diversified and robust portfolio of marketed andpipeline products. The Board believes that the Valeant non-binding proposal isan opportunistic attempt by Valeant to shift this value to Valeant and itsshareholders and away from the Company's shareholders."
 
 
Cephalon's Board of Directors also pointed out that Valeanthad valued the company based on "a worst-case scenario," and called the offer"opportunistic," given that the proposal of $73 per share was near Cephalon's52-week low of $56.74 per share and "represents virtually no premium toCephalon's 52-week high." The Board also claimed that Valeant's proposal"ascribes little to no value to Cephalon's pipeline," which the Board saysincludes "six indications with blockbuster potential."
 
"This is all about shareholder value," says Kevin Buchi,Cephalon's Chief Executive Officer. "The Cephalon Board of Directors iscommitted to maximizing value for our shareholders, and we take thisresponsibility very seriously."
 
 
Valeant stated on March 30 its intent to begin a consentsolicitation process during the week of April to replace all of Cephalon'sdirectors with Valeant's nominees. The offer represented an approximately 29percent premium on Cephalon's 30-day average, and Pearson stated that Valeant'sproposal was a "very compelling offer for Cephalon's stockholders."
 
"We are also committed to trying to find additional value ifwe are allowed to conduct due diligence," Pearson said of the offer. "Given theimportance of this transaction proposal to shareholders of both companies, andgiven that Cephalon's management continues to pursue strategies that in ourview reduce the value of a merged entity, we have decided to make our proposalpublic."
 
 
The proposal comes on the heels of several busy weeks forCephalon, including its purchase of the rest of ChemGenex PharmaceuticalLimited's outstanding common stock and its $225 million purchase of Gemin XPharmaceuticals. The Cephalon Board of Directors set April 8 as the record datefor the consent solicitation, and the consent solicitation period lasts for 60days from the date of the earliest dated consent delivered to Cephalon.
 
In the letter to Pearson, Buchi adds that "from thestandpoint of the Cephalon shareholder, a transaction with Valeant at this timeand at the price you proposed would mean foregoing the greater value obtainablefrom Cephalon's strategic plan, including the value inherent in our diversifiedand robust portfolio of marketed and pipeline products. Cephalon's Board andmanagement will, as we always have, continue to review, develop and adapt ourplan to maximize value for our shareholders."
 
Financial advisors for the offer include Deutsche BankSecurities Inc. and BofA Merrill Lynch, while Skadden, Arps, Slate, Meagher& Flom LLP acts as legal counsel for Cephalon.

Kelsey Kaustinen

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