Valeant to increase bid for Allergan
The stakes for Botox maker Allergan Inc. just got higher.
Valeant Pharmaceutical International Inc. said it intends to raise its bid for Allergan, one day after the Irvine company defiantly rejected its initial offer as too low.
In a letter to Allergan shareholders Tuesday, Valeant chief Michael Pearson said his company plans to outline details of its increased offer during a May 28 webcast.
“During yesterday’s conference call, Allergan offered a business-as-usual strategy while attempting to discredit our company,” Pearson told Allergan shareholders. “The silver lining of such an approach is that Allergan shareholders now have two very different options to consider and choose between.”
Analysts had widely expected Valeant to increase its bid.
“It’s very clear they got into this with the intention of completing it,” said Shibani Malhotra, an analyst with Sterne Agee. “The biggest question is it boils down to the price.”
Valeant offered a combination of cash and its stock for the company April 22. The Botox maker said little about the offer until Monday.
In a letter to Pearson, Allergan’s chief executive, David E.I. Pyott, said the offer was too low and “creates significant risks and uncertainties for the stockholders.” Allergan’s board unanimously rejected the offer.
Pearson did not disclose details of the new offer, but said it will be “substantially superior to an Allergan go-it-alone strategy.”
“On the call, we will discuss why our proposal offers greater short, intermediate and long-term shareholder value by managing Allergan’s assets under Valeant’s operating model,” Pearson said.
Valeant has offered to pay $48.30 in cash and 0.83 of a share of its stock for each share of Allergan stock. At Monday’s closing price, that would amount to $156.33 for each Allergan share — 41% more than Allergan’s Dec. 31 closing price.
Analysts have said Valeant could end up spending as much as $200 a share for Allergan.
“I think most shareholders are struggling with balancing the long-term versus the near-term certainty of an offer from Valeant,” said Malhotra, the Sterne Agee analyst. “While they can see that Allergan is an outstanding company with strong prospects, that has to be balanced with the fact that you could get $185 to $200 this year.”
Allergan came out swinging Monday in a conference call with industry analysts. Pyott said the company’s future is promising, and he dismissed the idea that it spends recklessly.
The CEO said he expects the company’s earnings per share to grow 20% to 25% in 2015 and at least 20% a year for the next five years.
He said the company’s spending on research and development, about $1 billion in 2013, has produced huge returns. Valeant has said it would reduce that to about $300 million.
“Some would argue that abandoning early-stage R&D helps drive profitability. However, we think that’s a shortsighted approach,” Pyott said.
