Valeant moves to hostile bid for Allergan, Pershing Square seeks board overhaul

Valeant Pharmaceuticals' CEO Michael Pearson indicated Monday that the company is preparing to file an "exchange offer" with the US Securities and Exchange Commission within three weeks to bring its unsolicited bid for Allergan directly to shareholders. Further, activist investor Bill Ackman's Pershing Square Capital Management, which is working jointly with Valeant in its takeover attempt, requested a special meeting of Allergan investors during which it would seek to oust six of Allergan's nine directors.

Ackman said the special meeting could occur as early as August 7, although Allergan could potentially delay it until November. He added that previously announced plans to hold a non-binding referendum were abandoned in part due to concerns that such a vote could trigger Allergan's poison-pill defence and delay the shareholder meeting. Pershing Square, which holds a 9.7-percent stake in Allergan, did not specify which directors it seeks to replace, nor with whom.

Last week, Valeant revised its takeover proposal for the second time, offering to pay $72 per share in cash to acquire Allergan, while keeping the stock component of its offer at 0.83 shares of Valeant stock, as well as a contingent value right of up to $25 per share based on the performance of Allergan's DARPin programme. The proposal values Allergan at about $53.8 billion, with Pearson saying "we believe that speed in concluding a transaction is in the best interest of both shareholders," adding "we will be patient, we will get this deal done."

Pershing Square stated that it recently met with six of Allergan's 10 largest shareholders, who expressed the belief "that the proposed merger is highly strategic and creates enormous shareholder value." The investor said "we believe the market has spoken, and that shareholders see substantial value in Valeant's revised proposal," noting that "to date, the board has refused to engage with Valeant in any way regarding a merger with Valeant."

Allergan, which has criticised Valeant's business model and the performance of several of its recent acquisitions, urged shareholders not to take any action until it responds to the latest proposal.

Commenting on the news, Sterne Agee analyst Shibani Malhotra suggested the lengthy process toward holding a shareholder meeting might benefit Valeant because a rise in its share price during that time would improve the value of its offer. Further, Malhotra added that Allergan was unlikely to allow the situation to escalate to a proxy battle, noting that the company would probably develop an alternative plan or negotiate more favourable terms. Meanwhile, BMO analyst David Maris remarked that Allergan had other options, including a share buyback, a dividend increase or a merger with another company.

For related analysis, read ViewPoints: Valeant ups bid for Allergan – big, bold, but lacking imagination?

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