Botox maker Allergan Inc. of Irvine, which has spent six months fighting a hostile takeover attempt by a Canadian company, is in increasingly serious discussions to merge with Irish pharmaceutical firm Actavis.
If Allergan agrees to be acquired by Actavis, the deal would probably snuff out a takeover attempt by Valeant Pharmaceuticals International Inc. and its hedge fund partner, Pershing Square Capital Management, industry analysts said.
"The most likely winner is Actavis, unless Valeant can come up with a significantly higher bid," said Shibani Malhotra, an analyst with brokerage Sterne Agee in New York.
Allergan, which sells ophthalmic drugs and medical devices in addition to the blockbuster wrinkle treatment Botox, has rejected Valeant's offer as too low. Valeant's most recent bid was for about $54 billion in cash and stock.
Actavis, which maintains U.S. headquarters in New Jersey, sells generic and branded drugs in more than 60 countries. As of December 2013, the company employed 19,200 people around the world.
Allergan shareholders are scheduled to vote Dec. 18 on a Valeant proposal to remove a majority of Allergan's board and replace them with directors who would approve a sale to Valeant.
Allergan is urging a no-vote by shareholders. Company executives have said they were unhappy with Valeant's proposal to slash the amount of money the company spends on research, a move that would probably lead to layoffs of hundreds or even thousands of its employees, many of them in Irvine.
Citing unnamed sources, Bloomberg News reported Wednesday that Actavis and Allergan are about $3 billion apart in negotiations, with Actavis wanting to pay about $60 billion and Allergan hoping for $63 billion.
"Valeant needs to jump into the bidding right now or they won't be able to win this," said Aaron "Ronny" Gal, who covers Allergan and Actavis for Bernstein Research. "It looks like Actavis will probably be the preferred deal."
With the shareholder vote about five weeks away, pressure is mounting for Allergan to reach a deal.
"They need to finish in early December so they can go to the shareholders who might have voted with Valeant and say, 'We'll merge with Actavis if you retain the current board,'" Gal said.
Allergan shares gained $1.17, or 0.6%, to $196.51. Valeant's stock was up $1.06, or 0.8%, to $131.09. Actavis shares fell $3.01, or 1.2%, to $240.62.
Whether Actavis or Valeant wins the bidding war, layoffs at the Irvine company appear likely.
"Actavis will still cut, but not as much as Valeant," Gal said. "I'm pretty sure there will be broad layoffs."