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Valeant ‘substantially undervalues’ Allergan

Published on 13/05/14 at 10:28am
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Allergan’s board has issued a defiant, unanimous rejection of the multi-billion dollar takeover offer made public by Valeant last month. 

In tone and language which echoes AstraZeneca’s recent rebuff to Pfizer, Allergan says Valeant’s $45.7 billion offer ‘substantially undervalues’ the company.

Valeant broke cover on its unsolicited bid after saying that Allergan had “not been receptive to our overtures for over 18 months and has made it clear both privately and publicly that it is not interested in a deal with us”.

Valeant is offering $45.7 billion in cash and shares for the Botox manufacturer, giving Allergan investors $48.30 in cash and $0.83 of a Valeant stock for each share, and overall a 43% stake in the new venture.

Backing Valeant is Pershing Square Capital Management, which is run by William Ackman, who is also the largest shareholder in Allergan.

However, in a statement the Allergan board concludes: “The proposal substantially undervalues Allergan, creates significant risks and uncertainties for the stockholders of Allergan, and is not in the best interests of the company and its stockholders.”

It adds that it expects to increase earnings per share by 20% to 25% and continue to generate double digit revenue growth in 2015.

Valeant’s proposal “does not reflect the value of the company’s leading market positions, sales and marketing foundation, industry-leading research and development efforts, as well as future revenue and earnings growth”, says chief executive David Pyott.

In a letter to Valeant chief executive Michael Pearson, Pyott wrote: “Allergan has a strategic plan in place that we believe is the right path forward to deliver value to our stockholders.”

In his original letter to Pyott, Pearson had written: “This proposal represents an undeniable opportunity to create extraordinary value for both Allergan and Valeant shareholders by establishing an unrivalled platform with leading positions in ophthalmology, dermatology, aesthetics, dental and the emerging markets.”

Allergan’s board is clearly not convinced of this – although it remains to be seen what the company’s shareholders make of it all.

Valeant believes that combining the businesses will save at least $2.7 billion, 80% of which would be realised within the first six months of closing the transaction, with the balance over the following 12 months.

The new company would get around 75% of its revenue from what Valeant calls ‘durable’ products, while 90% of its sales are “not expected to face any significant patent cliffs over the next decade”.

Adam Hill

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