Valeant again boosts takeover offer for Allergan

Valeant Pharmaceuticals on Friday announced that it would pay $72 per share in cash to acquire Allergan, up from its recently revised bid of $58.30 per share in cash, while maintaining the stock component at 0.83 shares of Valeant stock. The offer, which values Allergan at about $53.8 billion, similarly includes a contingent value right (CVR) of up to $25 per share based on the performance of Allergan's programme for the age-related macular degeneration DARPin therapy.

The Canadian drugmaker noted that the offer was contingent on "prompt good-faith" negotiations of a merger between the companies, with Valeant CEO J. Michael Pearson saying the "revised offer provides enormous value to both Valeant and Allergan shareholders." Allergan indicated that its board "will carefully review and consider" the proposal. The company's shares rose nearly 6 percent on the news.

As part of the revised offer, activist investor William Ackman's Pershing Square Capital Management, which holds a 9.7-percent stake in Allergan and has been backing Valeant in its efforts to acquire the drugmaker, agreed to forgo all cash and receive only stock in the merger to help get the deal done. "We believe that our gesture to the other Allergan owners makes an extraordinarily strong statement about our belief in the long-term value of this highly strategic business combination," Ackman remarked, adding "we look forward to the Allergan board immediately entering into negotiations with Valeant and finalising this transaction."

Commenting on the news, analyst Ronny Gal of Bernstein Research remarked that "the offer now appears credible," and while the transaction is not "a 'done deal' by a long shot...obviously the likelihood of success is higher now." However, BMO analyst David Maris described Valeant's latest move as "odd and erratic," coming only two days after Pearson indicated he would not "overpay" for the deal. "Like with marriages in olden days, when a dowry rises rapidly and without reason, you should take a closer look at the bride," he said.

Allergan rejected Valeant's original proposal of $48.30 per share in cash plus 0.83 shares of Valeant common stock, after having adopted a poison pill defence to thwart the unsolicited takeover attempt. Further, Allergan criticised the performance of several of Valeant's recent acquisitions, including Bausch & Lomb, which the Canadian drugmaker purchased last August. Pearson asserted that Allergan's analysis contained several errors and indicated a misunderstanding of the drugmaker's business model. Earlier this week, Valeant also agreed to divest certain dermatology assets to Nestle for $1.4 billion, a move the drugmaker suggested "dovetails well" with its proposed acquisition of Allergan.

For related analysis, read ViewPoints: Valeant's move for Allergan redefines specialty pharma M&A expectations and ViewPoints: Valeant ups bid for Allergan – big, bold, but lacking imagination?

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