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 The move to acquire Allergan, which is worth around $42 billion, is
highly unusual as activist investors typically buy stakes and then
agitate for strategic change, such as a sale of the company.
One source familiar with their plans said it comes after Valeant
tried for over a year to court Allergan but was turned away. Ackman
and his $13 billion hedge fund, Pershing Square, have a long record
in pushing companies to do his bidding, which could help Valeant buy
Allergan.
Allergan and a spokeswoman for Pershing Square declined to comment.
Valeant, which has been on a buying spree and most recently acquired
Bausch & Lomb Holdings, said that a merger with Allergan would
create an "unrivaled platform for growth and value creation," and
that it would soon finalize its proposal and then announce it.
A deal would bring together two mid-sized pharmaceutical companies
with expertise in skin care and eye care products. 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.
Allergan's longtime CEO, David Pyott, is also an avid dealmaker who
built Botox into a blockbuster by continuously testing it for new
uses.
Morningstar analyst David Krempa said the deal would also bring a
"massive amount" of potential operating synergies from the two
companies' overlap, and Valeant's lower tax rate in Canada.
Allergan shares rose 6 percent to close at $142 per share. Valeant
climbed 3.24 percent to close at $126.01.
Still, one Valeant shareholder thought the deal might be too pricey.
Allergan shares closed on Monday up 28 percent so far in 2014,
trading at all-time highs.
"It's almost impossible to turn it into a high return investment if
you pay that kind of price," said Glenn Greenberg, managing director
of Brave Warrior Advisors, a Valeant shareholder.
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BUYING UP A STAKE
Pershing Square began buying Allergan shares in February, spending
roughly $4 billion, its biggest-ever investment, to amass a 9.7
percent stake, according to a regulatory filing on Monday. Pershing
used money it had freed up by trimming its stake in Beam Inc and
getting out of General Growth Properties Inc, one of its biggest
winners ever.
In the regulatory filing, Ackman said Valeant will pay with a
combination of stock and cash and expects the cash component to
total around $15 billion. Barclays and Royal Bank of Canada have
said they are ready to help with financing.
Pershing Square does not shy away from controversy, having waged a
very public battle against nutrition and weight loss company
Herbalife with a $1 billion short bet unveiled in December 2012.
This year, Pershing Square is delivering some of the hedge fund
industry's best returns with a gain of roughly 10 percent through
the middle of April, a Pershing Square investor said, while the
broader Standard & Poor's 500 index is largely flat.
Hedge fund ValueAct, also known for pursuing activist strategies,
sits on the Valeant board but has historically shied away from
getting involved in hostile takeovers.
(Additional reporting by Bill Berkrot, Ransdell Pierson;
editing by
David Gregorio, Jonathan Oatis and Lisa Shumaker)
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