Valeant ($VRX) CEO J. Michael Pearson hasn't made a secret of his ambitions. He wants to be within spitting distance of Big Pharma. Numbers-wise, that means he's shooting for $10 billion in sales, quite a leap for a company currently reporting $3.5 billion in annual revenue. Next? $20 billion. So it probably shouldn't have been a surprise that he and Actavis ($ACT) chief Paul Bisaro were talking about a merger. And now, expectations are wide open.
The Actavis-Valeant talks have cooled, or so sources say. But even if they don't heat up again, Pearson has demonstrated that he's open to a broader range of deals than he's focused on in the past, industry experts and analysts tell Reuters. "He appears to be going for scale," a banker in the healthcare sector told the news service. And as Stifel analyst Annabel Samimy said in an investor note, "This provided a glimpse into the size and type of deal Valeant is considering. That Valeant had considered a leading generics and specialty brands company rather than another deal in the various areas of its expertise further suggests that any company could be on the table, not strictly those in its known wheelhouse."
Over the past several years, Pearson and Valeant have developed a specific modus operandi. The company zeroes in on deals ranging from several hundred million to a few billion, particularly in areas where it wants to specialize, like dermatology. As soon as buyouts close, Valeant brings its targets into the fold--and starts cutting costs. Valeant's $2.6 billion purchase of Medicis last year was a perfect example: Virtually instantaneously, Valeant cut around 200 jobs, aiming to save $225 million in the integration. Though the cost-cutting plans didn't include manufacturing shrinkage in that case, the company has shut down a dozen plants and laid off at least 1,100 workers in the course of the last few years.
As the healthcare banker tells Reuters, "Valeant isn't only about racking up deals. They've also done a pretty decent job at integrating their acquisitions." But some shareholders believe a target like Actavis wouldn't be so simple to digest. "I would like Valeant to focus on deals that are similar to the deals done in the past, which were mid-sized but have bigger cost-cutting opportunities," Gautam Dhingra, a portfolio manager with shareholder High Pointe Capital Management, told Reuters. "This (Actavis) deal would have limited its growth because the company would be too large."
- read the Reuters analysis