New Valeant bid for Botox maker Allergan ‘disappointing,’ analyst says

Valeant Offers to Buy Allergan With Pershing’s Support
Allergan in 2013 spent about $1 billion on research and development, and its chief executive said it has produced huge returns. Valeant has said it would reduce that to about $300 million. Above, Dr. Keith A. Marcus prepares to inject a patient with Botox, Allergan’s bestselling product.
(Patrick T. Fallon/Bloomberg)

Valeant on Wednesday boosted its cash-stock offer to buy Irvine company and Botox maker Allergan to $58.30 a share, raising the cash portion by $10, in a deal now worth about $50 billion. 

The Canadian company offered its second, improved bid in the hostile takeover of the Southern California company. Allergan Inc. in mid-May had rejected its rival’s first offer of $46 billion.

Valeant also included a provision to the offer that would pay up to $25 a share based on future sales of a medication to treat an eye condition. The company said it would invest up to $400 million and retain Allergan employees to develop Darpin, a medication in early stages of development. 

The stock portion of the bid would pay Allergan shareolders 0.83 of a Valeant share.


“Our increased offer provides additional immediate value to the Allergan shareholders,” Valeant’s chief executive J. Michael Pearson said. 

In a statement, Allergan said it will “carefully review and consider” the revised proposal. A spokeswoman for the company did not immediately respond to a request for further comment on the new offer. 

Aaron Gal, a senior analyst with Bernstein Research, in a note to clients called the new Valeant offer “rather disappointing” and said it did not change the “fundamental value” of the previous bid. 

“The offer continues to under-estimate Allergan value as stand-alone entity,” Gal wrote.  "As we noted previously, Allergan has recently increased its earnings expectations for 2014.”


Gal said the company should be valued between $167 and $184 a share, much higher than the estimated value of Wednesday’s bid, which is about $166 a share.

“At the current [Valeant] stock price, the current offer is inferior to [Allergan] on a standalone basis,” Gal wrote. “We hoped for something more imaginative, like substantially altering the share of cash and stock.” 

The two companies are locked in a hostile takeover fight that has heated up this week after Allergan sought to discredit Valeant, questioning the viability of its business strategy. 

It filed a presentation Tuesday with the U.S. Securities and Exchange Commission critiquing Valeant’s management and its proposed plans to reduce research and development spending.

Pearson defended his company and invited Allergan to meet with Valeant to discuss the proposed merger. 

“It appears based on Allergan’s recent public statements that you have a fundamental misunderstanding of our business model and its performance,” Pearson said. “We would be delighted to provide you and the Allergan board with the opportunity to better understand our business model and address any concerns that you may have. “

Based in Quebec, Valeant last month teamed up with activist investor Bill Ackman in an attempt to acquire Allergan, whose best-selling product is Botox, the popular wrinkle treatment. 

Allergan, however, has adopted a “poison pill” defense in an attempt to ward off a takeover, and its co-founder has urged the company’s board of directors to reject the bid.


The merger, if it goes through, would double the size of Valeant. It would become one of the largest specialty pharmaceutical companies in the world — and a giant in the eye care and skin care business.

Allergan is a specialty pharmaceutical company that makes most of its money from Botox but also sells breast implants and a line of ophthalmic drugs, including Restasis, the only prescription drug to treat chronic dry eye.

Valeant bought Bausch & Lomb last year, making it a global leader in eye health products.

Allergan reported $6.3 billion in revenue last year, about $2 billion of that from Botox. Restasis, the dry-eye drug, generated about $940 million in revenue. The company made an additional $378 million from its breast-implant business and $100 million through sales of Latisse, a prescription drug that thickens eyelashes.

Shares for both companies were down Wednesday in pre-market trading. Allergan was down $1.61, or .98%, to $163.41. Valeant shares were down 95 cents, or .73%, to $129.

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