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After proposing a sweetened takeover offer for Allergan that valued the maker of Botox and other drugs at $49 billion, Valeant Pharmaceuticals surprised the industry by raising the offer to $54 billion in cash and stock. The new offer came just two days later and before Allergan issued a response to the first proposal. The new offer increases the cash portion of the deal to $72 per Allergan share compared to the previous offer of $58.30 per share in cash. Valeant’s first offer for Allergan on April 22, valuing the company at $46 billion, was rejected by Allergan.
Under the terms of the new deal, each Allergan share would be exchanged for $72.00 in cash and 0.83 shares of Valeant common stock, based on the fully diluted number of Allergan shares outstanding. The offer is contingent on starting good faith negotiations to reach a merger agreement between the two companies.
The offer also includes a contingent value right of up to $25 per share based on Allergan’s experimental Darpin eye therapy hitting certain performance milestones. Pershing Square, the hedge fund run by billionaire Bill Ackman and Allergan's largest shareholder with a 9.7 percent stake, will receive $20.75 per share less consideration than other Allergan shareholders.
Pershing Square has been helping Valeant in its attempt to buy Allergan since its first proposal in April that valued the specialty pharmaceutical at $46 billion. Allergan’s management promptly rejected that proposal. To facilitate the deal, Pershing has also agreed to an all stock exchange of its shares.
“Early this morning, I called Mike and offered to give up $600 million of value to the other Allergan shareholders and exchange our shares for Valeant stock if Valeant were prepared to increase its offer to the other Allergan shareholders,” says Ackman, ahead of the new proposal. “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.”
That may explain why Valeant Chairman and CEO J. Michael Pearson didn’t wait for a response from Allergan before upping its offer. “We believe our revised offer provides enormous value to both Valeant and Allergan shareholders,” says Pearson. “We strongly believe that applying Valeant's operating philosophy, strategy, and financial discipline to a broader set of durable assets will continue to create substantial returns for shareholders over the short, intermediate, and long term. We are very committed to getting this deal done, and are now modifying our offer with the assistance of Pershing Square to increase the economics for all Allergan shareholders.”
Allergan has said it will evaluate the offer. It had rebuffed the first offer and had sought to discredit Valeant’s business model and its stock value.
If the merger does go through, it will be Valeant’s largest acquisition to date. Valeant’s strategy for growth has been through acquisitions. Since its acquisition of Biovail in 2010 for $3.3 billion, it has been gobbling up small and large companies including buying eye care company Bausch + Lomb just a year ago for $8.7 billion. It recently sold its skincare injectables business, including the Botox competitor Restylane, to Nestle for $1.4 billion to make way for acquiring Allergan.
If Valeant succeeds in buying Allergan, it will transform the specialty pharmaceutical into a global leader in eye care and skin care products.
May 31, 2014
http://www.burrillreport.com/article-valeant_again_raises_offer_for_allergan_now_to_54b.html
