Allergan Rejects Valeant’s Unsolicited Takeover Proposal

May 12, 2014 4:16 pm ET

(Updates with closing shares in 17th paragraph.)

May 12 (Bloomberg) -- Allergan Inc. rejected Valeant Pharmaceuticals International Inc.’s unsolicited takeover proposal, saying the offer “substantially undervalues” the maker of the Botox wrinkle treatment.

The bid, which valued Allergan at $45.7 billion in cash and stock when it was announced, creates “significant risks and uncertainties,” the Irvine, California-based company said in a statement today. Allergan expects earnings per share to rise 20 percent to 25 percent in 2015, with double-digit revenue growth, the company said the statement.

Allergan Chief Executive Officer David Pyott said on a conference call with analysts today that the company will meet with investors this week on his plan to grow the company.

“We believe Allergan is in a great spot,” said David Maris, an industry analyst at BMO Capital Markets Corp. in New York, in a note to clients. ‘Valeant’s prospects of completing this deal are less than 50 percent.’’

Maris said Allergan’s options include being acquired, buying another company or selling a large stake of the company to a strategic acquirer. The company might also continue to detail its growth outlook as a standalone company.

Allergan was said to prepare a takeover offer of Shire Plc according to a April 28 report by Reuters. Shire CEO Flemming Ornskov declined to comment in a May 1 conference call with analysts on whether he had been approached by Allergan.

Company Rebuffed

Johnson & Johnson and Sanofi have rebuffed Allergan’s efforts to draw a competing offer, people familiar with the matter have said. The bid by Laval, Quebec-based Valeant has backing from Pershing Square Capital Management LP, the hedge fund run by Bill Ackman, which owns 9.7 percent of Allergan according to a filing today. In the filing, Pershing Square asked for a full list of Allergan stockholders.

“Allergan has a long history of consistent growth and delivering solid results,” Pyott said on the call today. The board’s unanimous rejection of Valeant’s bid reflected belief in the current management, he said.

“We’ll be meeting with a very large portion of our shareholders and we’ll be listening loudly,” he said, adding that Ackman’s interest might not be in line with other shareholders’.

Pyott’s 2015 outlook of 20 percent earnings-per-share growth compares with analyst estimates of 16.3 percent, according to 24 estimates compiled by Bloomberg. The company’s first quarter 2014 earnings beat analyst estimates, and earnings per share grew more than 15 percent in 2013.

The deal creates “unnecessary risks” given “the unsustainability of Valeant’s business model,” Pyott said.

35 Companies

Valeant Chief Executive Officer Mike Pearson took the helm in 2008 and has spent at least $19 billion buying more than 35 companies as part of a goal to join the ranks of the world’s five biggest drugmakers by the end of 2016. The Allergan deal would be his biggest acquisition, eclipsing the $8.7 billion purchase of eyecare company Bausch & Lomb Inc. last year.

Some of Allergan’s “shareholders certainly wouldn’t be big fans of the Valeant model,” said Vamil Divan, an analyst with Credit Suisse Group AG in New York, in a telephone interview. The Valeant proposal creates value in the short term, but not in the long term, he said.

“There’s always been questions out there given the way Valeant’s thought about growing,” he said.

Laurie Little, a spokeswoman for Valeant, didn’t return calls for comment.

Deal’s Value

The deal values Allergan at about $156.44 a share, based on today’s closing price for Valeant. Allergan shares closed percent at $159.72, indicating some investors may expect a higher bid. The stock has gained 12 percent since April 21, before the Valeant bid came to light.

“I would read that as a positive from the Valeant side that Allergan doesn’t have something dramatic to offer” in terms of a white knight or a new transaction, Divan said. “They do have pretty good numbers going out in the next five years in the top line and the bottom line, I don’t think that’s surprising.”