Valeant's Allergan acquisition bid enters third month

Allergan has rejected Valeant's $72-per-share offer, and Valeant is preparing to take the offer straight to Allergan's shareholders

Kelsey Kaustinen
LAVAL, Quebec & IRVINE, Calif.—Valeant Pharmaceuticals International Inc.’s ongoing efforts to acquire Allergan Inc. continue to be stymied in light of the latter’s most recent rejection of Valeant's merger proposal (to catch up on the saga so far, check out ‘Valeant vies for Allergan’).
 
On June 2, Allergan noted in a press release that Pershing Square Capital Management, L.P. had filed preliminary proxy materials with the Securities and Exchange Commission to solicit proxies to call a Special Meeting of Allergan’s stockholders. The meeting would ask stockholders to remove a majority of Allergan’s directors and request for new directors to be appointed, in hopes of pushing Valeant’s latest proposal through. Allergan noted that it urged “all of its stockholders to refrain from taking any action, including returning any proxy card sent by co-bidders Pershing Square and Valeant, until they have reviewed the recommendation of Allergan’s Board of Directors. Under federal securities laws, Pershing Square and Valeant cannot solicit proxies from Allergan stockholders until Pershing Square and Valeant provide stockholders with definitive proxy solicitation materials.” Allergan reiterated its promise to carefully consider the newest proposal and act in the best interests of the company and its shareholders.
 
Valeant posted an investor presentation to its site the same day stating that it had met with a number of Allergan shareholders, several of whom “believe that the proposed merger is highly strategic and creates enormous shareholder value” and are “extremely disappointed with how Allergan has handled the process.” The presentation also noted that “shareholders wanted $180 of value, without assuming an increase in Valeant’s stock price.” According to the presentation, “Valeant is preparing to launch an exchange offer.”
 
On June 10, Allergan released a statement announcing that its board of directors had unanimously rejected Valeant’s revised proposal, maintaining their stance that it is a risky venture that undervalues the company.
 
“Valeant’s revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for Allergan's stockholders and does not reflect the Company’s financial strength, future revenue and earnings growth or industry-leading R&D,” commented David E.I. Pyott, chairman and CEO of Allergan, in the press release. “Allergan has a track record of generating consistently robust results and value for its stockholders, and we continue to have strong momentum in our business. The investment community has recognized the revised long-term growth outlook Allergan provided on May 12, 2014 and appropriately raised valuations for a standalone Allergan. We do not believe Valeant’s proposal reflects Allergan's growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant.”
 
In a letter to Michael Pearson, chairman and CEO of Valeant, Pyott noted that the rejection is based on a number of factors, among them that Allergan’s board has faith in the company’s organic growth and R&D engine, and that the company is expecting “double-digit sales growth and earnings per share compounded annual growth of 20 percent over the next five years.”
 
The company released an investor presentation the same day, in which Allergan said it considers Valeant’s growth to be “anemic” and “driven by what we believe are unsustainable price increases.” In addition, Allergan noted that Valeant had a “depleted R&D engine cut by $900mm,” with “abandonment or sale of pipeline” and “steady state R&D ratio of ~2 percent.” Allergan also cited that Valeant has seen volume decreases in 11 of its top 15 worldwide pharmaceutical products
 
Despite Allergan’s staunch rejection of a merger, Valeant is not letting up. As noted in a Reuters article, a spokeswoman for Valeant has said that in face of this latest rejection, Valeant plans to take the proposal straight to the shareholders. “Valeant’s offer to combine with Allergan will create substantial value for both companies’ shareholders, and we look forward to giving Allergan shareholders the opportunity to speak for themselves,” Laurie Little, spokeswoman for Valeant, said in a statement.
 
Market opinion of the potential deal remains mixed. As of June 10, Reuters noted that Valeant’s share fell 1.8 percent to $124.41, while Allergan’s share dropped 0.6 percent to $163.17, “far off the $177 per share price implicit in the Valeant offer.” Michael Waterhouse, Morningstar Research analyst, said those results suggest that “the market is still not going to go for it at the current price.”

Kelsey Kaustinen

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