Valeant Cuts Earnings Forecast as Allergan Pursuit Continues

Jul 31, 2014 4:18 pm ET

(Updates with closing shares in sixth paragraph.)

July 31 (Bloomberg) -- Valeant Pharmaceuticals International Inc., which is attempting a hostile takeover of Botox-maker Allergan Inc., cut its 2014 forecast after it sold a dermatology products line and another deal was delayed. The shares declined.

Revenue this year will be $8 billion to $8.3 billion, and earnings per share will be $7.90 to $8.10, Valeant said in an investor presentation released today. Previously the company had forecast $8.3 billion to $8.7 billion in revenue and earnings per share of $8.55 to $8.80.

“I don’t think anybody likes to see guidance lowered and that’s why the stock is down,” Tim Chiang, an analyst at Stamford, Connecticut-based CRT Capital Group LLC, said by telephone. “Still, I think investors have their eyes focused on whether or not Valeant will be successful with Allergan.”

Chief Executive Officer Michael Pearson has teamed up with activist investor Bill Ackman as he attempts to acquire Allergan in his plans to join the ranks of the world’s top pharmaceutical companies. Pearson has spent at least $19 billion buying more than 40 companies since 2008.

Part of his firepower to acquire Allergan depends on the price of Valeant’s stock, which is being used in combination with cash for the offer. “I have never been more confident about the growth trajectory across the entire company,” Pearson said in a statement announcing results today.

Shares Fall

Valeant’s shares fell 6.8 percent to close at $117.39 in New York, the biggest loss since May 2012. The company has gained 25 percent in the past 12 months.

Valeant’s revised estimate was due to the loss of revenue from its sale of aesthetic dermatology products to Nestle SA on July 10, and a delayed close to the acquisition of PreCision Dermatology Inc., according to the company presentation.

Second-quarter net income rose ten-fold to $126 million, or 37 cents a share, from $11 million, or 3 cents a share, a year earlier, the company said. Earnings excluding one-time items were $1.91 a share, beating by 1 cent the average of 17 analysts’ estimates compiled by Bloomberg.

The company also reported revenue for the quarter of $2 billion, driven by the U.S. contact lens business and 12 percent growth in the Bausch & Lomb Inc. consumer business that Valeant owns.

Merger Blueprint

Bausch & Lomb is a “blueprint” for a merger with Allergan, Pearson said on a call with analysts today.

Allergan, based in Irvine, California, has repeatedly rejected Valeant’s acquisition offers, including the latest bid of $72 in cash and 0.83 of a Valeant share for each Allergan share. David Pyott, Allergan’s CEO, announced a restructuring including cutting 1,500 jobs as he attempts to persuade shareholders to keep the company independent.

If the takeover was unsuccessful, Valeant could move quickly to another acquisition and sees “quality” opportunities especially in emerging markets, Pearson said.

“All the bickering and battling with Allergan is outweighing the fundamentals, which is unfortunate,” Chiang said, “Ironically enough, if Valeant never made this bid, investors might appreciate more what they’re doing.”