Valeant raises cash-stock offer for Allergan
Valeant Pharmaceuticals has pumped more cash into its bid to buy Botox maker Allergan, and it also defended its business model on Wednesday, a day after its reluctant acquisition target aired more concerns about a deal.
The Canadian drugmaker said it will now offer $58.30 and a portion of its stock for each Allergan share. The revised bid that could be worth more than $50 billion, based on Tuesday's closing price for U.S.-traded Valeant shares.
Valeant Pharmaceuticals International Inc. also added a contingent value right shareholder payment based on future sales of a potential eye treatment.
Valeant raised the cash portion of its offer by $10 from a previous bid of $48.30 per share. That was part of an offer Allergan rejected that was worth nearly $46 billion when Valeant announced it last month.
Valeant Chairman and CEO J. Michael Pearson told investors in a Wednesday morning webcast that he had talked to many Allergan stock owners "and the real message we continually got back is Allergan shareholders want this deal to occur, but they wanted a higher price."
That price still may not be high enough for those investors. Shares of both companies fell more deeply than the broader market after trading started Wednesday.
Allergan Inc. said in a brief statement it would carefully review the new proposal.
The latest bid totals $166.16 in cash and stock for each Allergan share. Credit Suisse analyst Dr. Vamil Divan said in a research note he believes shareholders may be looking for something in the $180 range.
Allergan, which also makes the dry eye treatment Restasis, has said repeatedly that it opposes a deal with Valeant. On Tuesday, it questioned Valeant's ability to deliver organic growth, which doesn't count gains through acquisition. It also said in a statement that the Canadian drugmaker has limited experience with "large, global scale products" and would cut research and development costs too much.
"Valeant's model of taking on debt to serially acquire companies will become incrementally harder to do as interest rates move higher," Allergan said in its statement.
Shortly after Valeant made its offer public, Allergan announced a so-called poison pill plan, a defensive tactic that makes a buyout prohibitively expensive. Earlier this month, Allergan said that Valeant's uncertain long-term growth prospects and business model create a risk for Allergan shareholders, given the stock component of the offer.
Valeant made its initial bid along with activist investor Bill Ackman. The investor's Pershing Square Capital Management LP holds a 9.7 percent stake in Allergan. Pershing had agreed to take only stock if the deal went through and would remain as a long-term shareholder of the combined company.
Valeant Chairman and CEO J. Michael Pearson said Wednesday in a letter to his Allergan counterpart, David Pyott, that the two sides should meet.
"It appears based on Allergan's recent public statements that you have a fundamental misunderstanding of our business model and its performance," Pearson wrote.
Valeant also said Wednesday that Allergan's analysis of its business "was full of errors," and its operating model would speed up growth for Allergan products, especially in developing markets.
"The numerous inaccuracies in Allergan's analysis call into question the quality of the analysis they, and their advisers, have done on the attractiveness of a deal," the company said in a slide show supporting its webcast. "We remain confident that investors have a clear view of this deal's potential."
Pearson also touted the performance of several Valeant executives during his presentation to investors, although he acknowledged he couldn't pronounce some of their last names.
Separately, Nestle said Wednesday that it will pay $1.4 billion in cash to Valeant for the rights to sell lip and wrinkle treatment Restylane and other skin products in the U.S. and Canada.
Shares of Irvine, California-based Allergan fell 4.4 percent, or $7.19, to $157.83 Wednesday morning, and U.S.-traded shares of Valeant dropped 3.5 percent, or $4.51, to $125.44. Meanwhile, the Standard & Poor's 500 index fell slightly.