Botox-maker Allergan rejects Quebec-based Valeant’s hostile takeover offer
Posted Jun 10, 2014 10:01:17 AM.
This article is more than 5 years old.
MONTREAL – The board of directors of Botox-maker Allergan once again slammed the door on discussions with Quebec-based Valeant Pharmaceuticals and unanimously rejected an improved takeover offer.
Allergan said Tuesday the offer undervalues the California-based company and creates significant risks and uncertainties for its shareholders.
“In addition, we do not believe your latest proposal offers sufficient or certain value to warrant discussions between Allergan and Valeant,” Allergan chairman and CEO David Pyott wrote in a letter to Valeant CEO Michael Pearson.
With the backing of activist shareholder Bill Ackman of Pershing Square Capital Management, Valeant (TSX:VRX, NYSE:VRX) raised its stock-and-cash bid to about US$177 per share, valuing Allergan at more than US$53 billion, based on share prices Tuesday.
The offer of US$72 in cash and 0.83 of a Valeant share for each Allergan share was contingent on “good faith negotiations” of a merger agreement.
Pershing Square also agreed to accept less than other shareholders in an effort to see the Valeant deal done. The investment firm will forgo any cash and receive 1.22659 Valeant shares for each Allergan share it holds.
Allergan (NYSE:AGN) repeated its claim that Valeant’s has an unsustainable business model that relies on “serial” acquisitions and cost reductions, as opposed to revenue growth and operational excellence.
It pointed to “a lack of clarity” surrounding Valeant’s growth potential because of its suitor’s “opaque pro-forma” financial reporting which doesn’t fully indicate how past acquisitions and products are performing. Allergan also said Valeant’s growth is primarily driven by significant price increases and its cost-savings targets would destroy Allergan’s long-term value.
“As we have indicated previously, the Allergan board has serious concerns about the large stock component of your proposal, and the recent presentations by both you and Pershing Square did nothing to address the issues we previously raised,” Pyott added.
In contrast, the U.S. company said its strategy will provide double digit sales growth, 20 per cent annual compounded earnings per share increases.
Ackman, Allergan’s largest shareholder, has moved to call a special meeting of shareholders at the U.S. company in a bid to replace a majority of its directors.
Analyst David Maris of BMO Capital Markets said investors should prepare for a long battle that could extend well into 2015, but pegs the likelihood of Valeant succeeding at less than 50 per cent.
“We are still in the early innings and believe Allergan and Valeant are geared up for a long fight and investor call volume remains high on the situation,” he wrote in a report.
Maris added that Allergan has options — including buying back its shares, raising its dividend and combining with another company — but to his knowledge hasn’t authorized investment banks to explore strategic options.
“The debate, in our view, has shifted to what is Valeant and what is it worth?” he said, pointing to increasing questions about Valeant’s growth metrics.
Allergan shares gained 11 cents at US$164.26 in Tuesday morning trading on the New York Stock Exchange, while Valeant shares lost $1.22 at US$125.41.
In Toronto, Valeant shares were down 53 cents at C$137.50.
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