Coverage: Allergan rejects Valeant’s offer

Not all the deals in the pharmaceuticals space are sailing through these days. On Tuesday, the news broke that Allergan, the maker of Botox, wasn’t going to take $53 billion. But it seems the fight is just getting started.

David Benoit had this story for The Wall Street Journal:

Allergan Inc. on Tuesday rejected a sweetened $53 billion bid from Valeant Pharmaceuticals International Inc. VRX -1.05% and William Ackman and said it still wouldn’t enter into negotiations.

The Irvine, Calif. maker of Botox said Valeant’s cash and stock offer significantly undervalues its prospects for growth. It again called Valeant’s business model “unstainable” and said Allergan shareholders don’t want Valeant stock.

“They are really quite considerable concerns,” Allergan Chief Executive David Pyott said in an interview. “The only part we do know how to value is the U.S. dollar portion of” the bid.

The rejection is the latest volley in a heated fight for Allergan. Mr. Ackman has already taken steps to seek a majority of the board, and Valeant is readying a hostile tender offer.

Tuesday, Valeant said it had “no choice but to take our offer directly to shareholders.”

In a story for The New York Times, David Gelles quoted Pyott as saying shareholders aren’t united on the price they’ll take:

The rejection was in some ways a foregone conclusion. Allergan has refused to meet about a potential deal since William A. Ackman, the activist hedge fund manager, disclosed a stake of nearly 10 percent in the company and said he was working with Valeant on a deal.

Last week, Mr. Ackman and Mr. Pearson outlined the steps they planned to take in the coming months to replace the Allergan board and give shareholders a chance to vote on a deal.

Mr. Ackman has repeatedly said that top Allergan shareholders wanted a price of about $180 a share, which led to two price increases in three days late last month. The current offer is worth about $177 a share, based on Valeant’s closing price on Monday.

In an interview, Mr. Pyott continued his counterattack on Valeant and its stock.

He said that despite Mr. Ackman’s claims, top Allergan shareholders were not united in their willingness to sell at a price of about $180 a share in cash and stock.

“Our top shareholders are saying something quite different,” Mr. Pyott said. “From various ones we’ve heard numbers that are well north of what Mr. Ackman is using.”

Nathan Vardi focused on Ackman’s role in the deal in his story for Forbes:

In recent days, hedge fund billionaire William Ackman has done everything he could to push Allergan to accept a $53 billion takeover offer from Valeant Pharmaceuticals . By Ackman’s math, his Pershing Square hedge fund, which is a big Allergan shareholder, gave up some $600 million in value and agreed to only receive Valeant stock in the deal so that other Allergan shareholders could enjoy more cash. Ackman even co-hosted CNBC’s Squawk Box program on Monday to promote the deal further.

But Allergan rejected Valeant’s sweetened offer on Tuesday morning in an emphatic way, setting the summer stage for a nasty hostile takeover battle. Allergan’s directors unanimously voted against Valeant’s second boosted offer, which included $72 per share in cash, 0.83 of a Valeant share and a contingent value right sweetener pegged to Allergan’s experimental vision-loss drug.

Andrew Ward reported for The Financial Times that the fight could extend into next year:

The takeover battle has become a proxy for debate over how pharmaceuticals companies should seek to generate growth – with Allergan touting its research-driven approach, while Valeant promises to find greater efficiencies.

Mr Pyott has warned that Valeant’s record of sharply cutting research and development spending after deals would destroy value in Allergan, whose products range from its Botox wrinkle treatment to eye drops and breast implants.

Michael Pearson, Valeant’s chief executive, has already led the company to 100 acquisitions since taking over in 2008 – and presided over a near-ninefold increase in its share price. He has argued that the purchase of existing companies and products is preferable to investing in high-risk R&D, something he says is better left to smaller biotech companies.

Mr Pearson last week said he was willing to be patient in his pursuit of Allergan but added: “We will get this deal done.”

Valeant’s successful acquisitions include last year’s $8.7bn takeover of Bausch & Lomb, the eyecare company. But it has suffered setbacks before, including a failed $35bn merger with Actavis, the Dublin-based speciality pharmaceuticals company.

Analysts at BMO Capital predicted a “long fight” for Allergan that could last well into 2015.

Allergan shares closed down $1.06 to $163.09 on Tuesday, while Valeant’s stock also dropped $1.08 to $125.55. Seems that investors are looking for some deal to happen and aren’t looking forward to a protracted takeover battle.