Allergan Rejects Valeant’s Revised $53-Billion Takeover Bid

The board of directors of the specialty pharmaceutical company, Allergan, Inc., has unanimously rejected the revised unsolicited proposal, dated May 30, 2014, by Pershing Square Capital Management, L.P. , Allergan’s largest shareholder, and Valeant Pharmaceuticals International, Inc. to acquire Allergan. Valeant’s latest combined cash and stock deal of approximately $52.7 billion involved acquiring all of the outstanding shares of Allergan for a combination of 0.83 of Valeant common shares, $72.00 in cash per share of common stock of the company, and a contingent value right related to sales of DARPin, Allergan’s developmental drug candidate to treat age-related macular degeneration. Pershing Square, Allergan’s largest shareholder with a 9.7% stake, also agreed to elect only stock consideration in the transaction and exchange its Allergan shares for Valeant shares at a 1.22659 exchange ratio and receive no cash consideration.

Despite increasing the cash portion of the deal to $72.00 in cash per share of common stock, up from a cash consideration of $48.30 in Valeant’s initial proposal made in April 2014 and subsequent offer to $58.30 per share in cash made later in May 2014, Allergan again rejected the proposal from Valeant with concerns over the large stock component of the proposal.

“Valeant’s revised proposal substantially undervalues Allergan, creates significant risks and uncertainties for Allergan’s stockholders, and does not reflect the company’s financial strength, future revenue and earnings growth or industry-leading R&D,” said David E.I. Pyott , Allergan’s chairman of the board and chief executive officer, in a company statement. “Allergan has a track record of generating consistently robust results and value for its stockholders, and we continue to have strong momentum in our business. The investment community has recognized the revised long-term growth outlook Allergan provided on May 12, 2014 and appropriately raised valuations for a standalone Allergan. We do not believe Valeant’s proposal reflects Allergan’s growth prospects, nor does it offer sufficient or certain value to warrant discussions between Allergan and Valeant,” he said.  

In rejecting the proposal, Allergan said that it expects that its business plan will generate double-digit sales growth and earnings per share compounded annual growth of 20% as well as approximately $14 billion in additional free cash flow during the next five years. In its statement, Allergan also raised concerns over what it termed as Valeant’s “unsustainable business model  [that] relies on serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence.” Allergan also cited a lack of clarity surrounding Valeant’s growth potential because of “Valeant’s opaque pro-forma driven financial reporting, which provides, among other things, limited insight into how past acquisitions and products are performing,” said Allergan in its statement. Allergan also pointed to what it termed as Valeant’s “anemic growth,” which Allergan said was primarily driven by price increases and Valeant’s

  • “unrealistic” SG&A (selling, general, and administrative) and R&D synergy targets,” which Allergan said would destroy its long-term value.
  • Source:Allergan

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