The offer, if successful, would bring together two mid-sized
pharmaceutical companies with expertise in skin care and eye care
products, and is highly unusual as activist investors typically buy
stakes and then agitate for strategic change.
Ackman's Pershing Square Capital Management, Allergan's largest
shareholder with a 9.7 percent stake, disclosed in a filing on
Monday it is supporting the bid.
Allergan said in a statement that it has received the offer, and
will carefully consider the proposal and "pursue the course of
action that it believes is in the best interests of the company's
Late on Tuesday, Allergan said it adopted a shareholder rights plan
effective April 22 that will trigger if a person or group acquires
10 percent or more of its shares.
Valeant offered to pay $48.30 a share in cash and 0.83 of its common
share for each Allergan share, valuing Allergan at $152.88 a share,
a premium of over 7 percent to the company's closing price on
The offer is 31 percent higher than Allergan's stock price on April
10, the day before Pershing Square's ownership reached 5 percent.
Shares of Allergan jumped 15.2 percent to $163.65 in New York,
signaling investors expect a sweetened bid to emerge.
Valeant stock rose 7.5 percent to $135.41.
Valeant has been on a buying spree since 2010 and last year acquired
contact lens maker Bausch & Lomb Holdings. Chief Executive Michael
Pearson said in January the drugmaker wants to become one of the
world's top five pharmaceutical companies by market capitalization
by the end of 2016, largely through acquisitions.
"The big valuation driver is Botox," Pearson said, speaking about
the Allergan bid to about 200 shareholders and analysts in New York.
Pearson said Allergan Chief Executive David Pyott and the company's
board had been unwilling to discuss a merger with Valeant. In a
letter to Allergan, Valeant said it would have preferred to
negotiate a deal in private.
Pearson said Valeant would definitely not turn its bid into an
all-cash offer, and suggested the company could still walk away if
Allergan's price gets too high.
"We don't view this as we're going to pay whatever it takes to get
Allergan, because we won't," he said. "If someone wants to come in
and pay some ridiculous cash price, that's their choice."
Ackman, who also addressed shareholders, called the deal the most
synergistic he has seen, and said he is already talking with Valeant
about their next deal.
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The Laval, Quebec-based company, whose products include
antidepressant drug Wellbutrin and over-the-counter remedy Cold-FX,
favors targets where it can aggressively cut costs. Valeant said it
expects to realize at least $2.7 billion in annual cost synergies
from a combination with Allergan.
A large-scale cost-cutting approach may not work at Allergan without
damaging the business, BMO Capital Markets analyst David Maris said
in a note.
But J.P.Morgan analyst Chris Schott said the potential for savings
from operating expenses and Valeant's low tax rate is compelling.
Allergan, which also has a lucrative portfolio of ophthalmic drugs
to treat conditions such as glaucoma and dry eye, is larger by
revenue, reporting $6.3 billion in sales last year. Valeant reported
$5.8 billion in revenue last year.
Pearson said he doesn't expect the offer to raise antitrust
The Federal Trade Commission, which shares the work of antitrust
enforcement with the U.S. Justice Department, will likely review
this proposed transaction, according to an antitrust attorney, who
declined to be named for business reasons.
"It's like any of these big drug deals, if there's overlap in
certain products then, like prior deals in this space, they can
divest one of the products to get the deal through," the antitrust
Valeant is already in talks with potential buyers of products the
new company would divest, Pearson said, naming Valeant's Botox
competitor, Dysport, as well as its Restylane and Perlane product
lines. Combined sales of those lines could reach about $250 million,
(Reporting by Euan Rocha in Toronto, Rod Nickel in Winnipeg, Esha
Dey in Bangalore, Diane Bartz in Washington and Caroline Humer in
New York; editing by Saumyadeb Chakrabarty, Nick Zieminski and
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