Valeant says it’s willing to raise offer for Allergan to $200 a share
As shareholders of Botox maker Allergan Inc. prepare for a vote on the company’s future, a Canadian suitor said it’s willing to increase its offer to buy the Irvine firm.
J. Michael Pearson, chief executive of Valeant Pharmaceuticals International Inc., encouraged the Irvine company in a letter to the board Monday to open negotiations. He said Valeant would pay up to $200 a share — about 10% higher than Allergan’s latest closing price — but did not make a formal offer.
“It is past time for the board to take control of this process, do what is right for the Allergan shareholders and come to the table,” Pearson said.
Valeant’s latest salvo came just before Allergan announced impressive third-quarter earnings and continued to make the case that it is better off without a Canadian parent.
“As we have noted repeatedly, Valeant’s offers have been grossly inadequate and significantly undervalued Allergan,” the eye- and skin-care company said.
A $200-a-share price would value Allergan at about $59 billion.
David Maris, an analyst who covers Allergan for BMO Capital Markets Corp., said he thinks that Allergan is worth much more than even the $200 price Valeant hinted at Monday. He estimated that Allergan would be trading at $230 a share within 12 months.
“Allergan’s board would be crazy if they accepted a $200-a-share offer from Valeant,” Maris said. “It’s not a $200 offer. It’s a stock-and-cash offer. If you agree to that deal and Valeant’s stock goes down, the offer is a lot less.”
Allergan’s board has rejected two previous offers from Valeant. The Laval, Quebec, company’s most recent offer, issued in May, would pay $72 in cash and 0.83 of a share of Valeant stock for each share of Allergan stock. At Monday’s closing price, that offer would amount to $180.37 for each Allergan share, about $2 below Allergan’s latest price of $182.33, down $1.88, or 1%. Valeant’s first offer, issued in April, was valued at $152.89 a share.
Allergan has thus far declined to say at what price it would seriously consider a Valeant offer.
Pressed on that point during a call with analysts Monday, Allergan Chief Executive David E.I. Pyott did not respond directly.
“All of our efforts are focused on how to increase value for our stockholders,” Pyott said. “Clearly, the board has in the past been clear that the offers substantially undervalue the company.”
Pyott seemed much more eager to discuss Allergan’s third-quarter performance: The company reported net income of $312.5 million, or $1.03 a share, compared with $300.8 million, or $1, in the same quarter last year.
“Allergan posted the strongest increase in absolute dollar sales in any quarter in our 64-year history, with strong contributions from nearly all of our businesses and major products,” Pyott said.
Valeant’s attempted takeover of Allergan has been one of the hottest topics on Wall Street this year. The Canadian firm has partnered with Bill Ackman’s hedge fund, Pershing Square Capital Management, in the deal.
In the weeks leading up to the offer, Pershing Square acquired nearly 10% of Allergan’s stock, making it the company’s largest shareholder.
Allergan later sued Pershing Square, accusing the hedge fund of insider trading because it bought the shares knowing that Valeant was about to make an offer for Allergan. Pershing Square and Valeant defended their partnership and said the hedge fund’s share purchases were legal. The lawsuit is pending.
Valeant has said Allergan spends too heavily on research and development and could thrive under its ownership.
Allergan announced in July that it would cut 1,500 jobs, many of them in Southern California, as part of a cost-cutting effort aimed at increasing profit.
Allergan has scheduled a Dec. 18 shareholder meeting to vote on Pershing Square’s proposal to replace several members of Allergan’s board with candidates who would be likely to approve Valeant’s proposed buyout.
Allergan reported $6.3 billion in revenue last year, about $2 billion of that from Botox sales and nearly $1 billion from sales of Restasis, a drug used to treat chronic dry eye.
The company took in an additional $378 million from its breast-implant business and $100 million from sales of Latisse, a prescription drug that thickens eyelashes.
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