Valeant's ($VRX) hostile bid for Allergan ($AGN) may soon be on the rise. But after posting strong Q3 results earlier this week, some analysts say Allergan's value is, too.
Earnings of $1.78 per share and sales of $1.79 billion were enough to convince Sterne Agee analyst Shibani Malhotra, for one, to raise Allergan's standalone valuation to $215--meaning that the "at least $200 a share" Valeant CEO J. Michael Pearson said on Monday that he's prepared to offer may not be enough to seal a deal.
That would-be offer "does not provide a sufficient premium, in our view," Malhotra wrote in a note to investors. "Allergan has delivered strong performance and we argue that shareholders deserve a premium over standalone value."
Instead, Malhotra says, Allergan's latest quarterly performance--which included SG&A and R&D rates that both declined, demonstrating the "operating leverage inherent in Allergan's business model"--increases the company's strategic options. A value-enhancing M&A move, a merger or takeover with another bidder--such as the reportedly interested Actavis ($ACT)--and a share buyback and/or special dividend are all on the table.
But those options come with their own hurdles. While a repurchase could be a viable option up through even $200 a share, Leerink Partners analyst Seamus Fernandez wrote in an investor note, he's "much less enthusiastic" about that move, which could lever Allergan to "slowing post-2016 growth."
As for an all-cash pickup that could increase Allergan's value and potentially thwart Valeant without the need for shareholder approval, it would have to come pretty soon in order to preempt the Botox maker's Dec.18 special shareholder meeting. There, investors will have the opportunity to upturn Allergan's board in favor of a slate put forth by Valeant partner Bill Ackman.
"It is getting down to brass tacks" for Allergan CEO David Pyott and the board to make a move, Fernandez wrote. "Should the board decide to move on an all-cash acquisition, investors should be prepared for an overt attack on the quality of the target business" from Valeant and Ackman, "increasing the need for any all-cash deal announcement to be binding and well underway by December 18th."
- read Allergan's earnings release
Special Reports: Pharma's top 10 M&A deals of 2013 - Valeant/Bausch + Lomb | The most influential people in biopharma today - J. Michael Pearson, Valeant | 20 Highest-Paid Biopharma CEOs of 2012 - David Pyott, Allergan