Valeant Raises Takeover Offer for Allergan With Added Cash

May 28, 2014 4:27 pm ET

(Updates with closing share prices in 11th paragraph.)

May 28 (Bloomberg) -- Valeant Pharmaceuticals International Inc. raised its unsolicited offer for Allergan Inc. to about $49.4 billion, adding more cash to the bid in an effort to win backing from the target and its investors.

Holders of Allergan, the maker of the Botox anti-wrinkle drug, will get cash and stock of about $166.16 a share, plus a contingent value right valued at as much as $25 a share if the experimental eye drug DARPin meets sales goals, the Laval, Quebec-based company said in a statement today. The original offer, which didn’t include a CVR, was valued at about $152.89 a share when it was announced April 22.

Valeant also sold rights today to some skin-care products to Nestle SA today for about $1.4 billion. The deal includes products designed to improve frown lines and wrinkles, and may help clear antitrust questions on the Allergan deal, Valeant’s largest ever.

The Nestle agreement “eliminated one more roadblock in terms of our integration with Allergan,” Valeant Chief Executive Officer Mike Pearson said on a conference call today.

Pearson has said he wants his company to join the ranks of the world’s five biggest drugmakers by the end of 2016. The Allergan offer eclipses last year’s $8.7 billion purchase of eye-care company Bausch & Lomb Inc. Allergan shares had gained about 16 percent through yesterday since the offer, signaling investors expected Valeant to pay a higher price, and its market value had increased to $49.1 billion.

‘Specific Feedback’

“Over the past several weeks, we have met with, and listened carefully to the views of, a number of Allergan shareholders,” Valeant said in a letter to Allergan CEO David Pyott. “Our revised offer is based on specific feedback we received in our discussions.”

The new proposal consists of $58.30 a share in cash, $10 more than the previous offer, along with 0.83 of a Valeant share. Allergan rejected the initial offer on May 12, saying it “substantially undervalues” the Irvine, California-based company.

Allergan’s board will review and consider the new proposal, the company said in a statement today. Investors don’t need to take any action now, Allergan said. Bonnie Jacobs, an Allergan spokeswoman, didn’t immediately return a phone call seeking comment.

The new bid is still under the per-share minimum of $180 that investors wanted, Vamil Divan, an analyst with Credit Suisse Group AG in New York, said in a note to clients.

“Allergan has several ways that they can boost standalone value of the firm, if not possibly fending off Valeant completely,” he said. “Strong base business and balance sheet leave Allergan many options and we see them being more proactive in the face of Valeant’s bid.”

Shares Decline

Allergan shares fell 5.4 percent to $156.12, the biggest one-day drop since June 24. Valeant declined 2.3 percent to $126.95.

David Maris, an analyst with BMO Capital Markets Corp. in New York, said in a note today that 74 percent of 85 institutional investors and company executives in a survey believe Allergan’s business would be in a worse shape three years later if a deal took place.

As part of its defense, Allergan yesterday criticized Valeant’s management practices and operations, saying it believes the Canadian company’s organic sales growth is overstated and that its two largest acquisitions, Bausch & Lomb and Medicis, have underperformed since the purchases. Valeant bought Medicis, a maker of skin care products, in September 2012 in a deal announced for $2.6 billion.

Pearson defended company’s business model and acquisitions in a webcast today, saying there was “misleading” information and errors in Allergan’s claim. “Bausch & Lomb is actually growing,” 10 percent in volume, not price, he said.

Original Offer

The original offer valued Allergan at about $45.7 billion. Valeant teamed up with hedge-fund manager Bill Ackman, whose Pershing Square Capital Management LP is Allergan’s largest shareholder. The firm amassed a 9.7 percent stake in the company after reaching an agreement with Valeant to jointly undertake a bid.

“Allergan shareholders want this deal to occur, but they wanted a higher price,” Pearson said. “A lot of them wanted the optionality of DARPin.”

Allergan told investors on a May 12 conference call that eye drug DARPin has the potential for $20 billion of sales in its first 10 years on the market.

Eight U.S. lawmakers sent a letter to the Federal Trade Commission, raising concerns that a Valeant acquisition of Allergan “could have significant anti-competitive consequences that adversely affect consumers, patients and physician providers.”

“Of particular concern is the likelihood that Allergan’s robust research and development portfolio will be compromised,” the members of the House of Representatives said.

Nestle Deal

Nestle, in its deal with Valeant, gained the rights to market corrective facial aesthetic treatments Restylane, Perlane and Emerval in the U.S. and Canada, as well as Dysport, an aesthetic dermatology product, the Vevey, Switzerland-based company said in a statement. Nestle also acquired global rights to Sculptra.

The Swiss company is boosting its skin-health division as sales at its main food business struggle. The Nescafe maker made a foray into specialized medical skin treatments in February, when it bought L’Oreal SA’s share of Galderma, a dermatology company whose products revive skin.

Galderma will become part of a new division known as Nestle Skin Health SA, with a brand stable ranging from prescription drugs to over-the-counter soaps.

--With assistance from Patrick Winters in Zurich and Catherine Larkin in Chicago.