Valeant launches $327 million hostile bid for ISTA Pharmaceuticals

Offer of $6.50 per share in cash represents a premium of approximately 68 percent over ISTA's 60-day volume weighted trading average of $3.87

Jeffrey Bouley
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MISSISSAUGA, Ontario—Valeant Pharmaceuticals International Inc., in yet another step in its continuing buy-up spree, announced Dec. 16 that it had made a proposal to the board of directors of Irvine, Calif.-based ISTA Pharmaceuticals Inc. to acquire ISTAfor $6.50 per share in cash. The proposed transaction has a total equity value of approximately $314 million on a fully diluted basis which, in addition to ISTA's net debt of approximately $13 million, brings the total enterprise value to approximately $327 million.
This proposed price, unanimously supported by Valeant's board, represents a premium of approximately 68 percent over ISTA's 60-day volume weighted trading average of $3.87 and a premium of approximately 67 percent over ISTA's closing price of $3.89 on Dec. 15, 2011.
ISTA's shares have seen a serious drop in the pastseven months after sales of one of its key eye treatments for inflammationand pain suffered in the wake of Mylan Inc. launching a generic version of the drug.
Saying that it had been "preferring a consensual process," Valeant reports that it first approached ISTA on Oct. 5,2011. After ISTA reportedly "refused to enter into a customary confidentialityagreement," Valeant made a formal written proposal to ISTA'smanagement on Nov.r 23, 2011. ISTA responded to this letter on Dec. 2, 2011, stating that it needed more time to review Valeant's proposal. Valeant reaffirmed its proposal to ISTA on Dec. 12, 2011 in writing, and ISTA rejected that proposal two days later.
Valeant's chairman and CEO, J. Michael Pearson, says his company is "disappointed by ISTA's rejection of its proposal andISTA's unwillingness to engage in discussions."
"The proposed $6.50per share price represents a meaningful premium to ISTA's recenttrading performance, and we believe it represents a compellingopportunity for ISTA's shareholders in light of the continuingchallenges facing ISTA," Pearson noted in a news release about the deal. "We would be willingto consider improving our offer price if we were allowed to conduct duediligence and found additional value. Given the importance of theproposed transaction to shareholders of both companies, we have decidedto make our proposal public. We believe ISTA stockholders should not bedenied the opportunity to determine for themselves whether their boardand management should engage with Valeant in a meaningful and productivedialogue regarding our proposal. We have already devoted significanttime and resources to pursing this potential transaction. Therefore,consistent with our past disciplined approach to acquisitions, our $6.50 offer will only remain in effect until Jan. 31, 2012."
The response of ISTA's board of directors to Valeant's overtures, expressed via a letter sent by ISTA President and CEO Vicente Anido Jr., said that after careful deliberation,with the assistance of its financial and legal advisors, ISTA had determined on Dec. 13 that the non-bindingproposal was "grossly inadequate and not in the best interests of ISTAshareholders."
ISTA further reports in its official statement to the hostile takeover move, "Due to the fact that Valeant has attempted torevive its previously rejected proposal, ISTA's Board announced that it willcommence a review of all strategic options available to ISTA in the context ofits fiduciary responsibilities and the Company's strategic plans."

Jeffrey Bouley

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