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Allergan rejects Valeant – again

Published on 11/06/14 at 10:45am
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Allergan and Valeant Pharmaceuticals International are continuing their stately dance around one another – and in the latest move the board of Allergan has unanimously rejected Valeant’s revised offer of $54 billion.

The words it has used echo its previous rebuff of Valeant’s $45.7 billion bid – once again it says Valeant ‘substantially undervalues’ the Botox manufacturer.

Backing Valeant is Pershing Square Capital Management, which is run by William Ackman, who is also the largest shareholder in Allergan - but the numbers so far have not impressed Allergan.

This time the proposed deal was $72 in cash per Allergan share and 0.83 of Valeant common shares.

“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,” says David Pyott, Allergan’s chief executive.

Pyott goes on to mention his firm’s ‘consistently robust’ results and ‘strong momentum’ and the fact that it was not in the best interests of the company.

This latest offer from 30 May was not even worth discussing with Valeant, he says, adding that he would update shareholders around the time Allergan puts out its second quarter results.

In a letter this week to Valeant chairman Michael Pearson, Pyott wrote: “As we have indicated previously, the Allergan Board has serious concerns about the large stock component of your proposal.”

Questioning the sustainability of Valeant’s business model, he added that Allergan produces a sales return of 25 times its cumulative R&D spend, and expects to achieve double digit sales growth and earnings per share compounded annual growth of 20% over the next five years.

He concluded by saying that Allergan’s standalone strategic plan will generate approximately $14 billion in additional free cash flow over the next five years.

Valeant broke cover on its first 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”.

At the time the Canadian firm believed that combining the businesses would 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, Valeant said then, would get around 75% of its revenue from what it 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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