Allergan board dismisses Valeant bid, but is it running out of options?

Allergan's ($AGN) board never seemed too thrilled with the unsolicited $47 billion takeover proposal Valeant ($VRX) CEO J. Michael Pearson and partner Bill Ackman put forth last month. Now, the company's directors have made their feelings crystal clear with a unanimous decision to reject the bid. But with Sanofi ($SNY) and Johnson & Johnson ($JNJ) both declining to play the white knight, they may soon find themselves short on options if shareholders see things differently.

Allergan CEO David Pyott

According to the Irvine, CA-based drugmaker's board, the offer from Valeant and Ackman "substantially undervalues Allergan," which expects to produce double-digit sales growth and EPS compounded annual growth of 20% over the next 5 years. And Pearson, wielding his job-chopping ax, is not going to help it get there, CEO David Pyott said in a letter to the Canadian company's CEO.

"We question how Valeant would achieve the level of cost cuts it is proposing without harming the long term viability and growth trajectory of our business," he wrote. "For those reasons and others, we do not believe that the Valeant business model is sustainable."

It's not a surprising move from Allergan, whose board swallowed a poison pill shortly after Pearson and Ackman went public with their plans. Reports have called the R&D-focused Allergan averse to a takeover by Pearson, who likes to pick up a company, squeeze out costs, and move on to the next.

Bill Ackman

Shareholders, however, may find those cost cuts more attractive. Pearson and Ackman have promised $2.7 billion in synergies, as well as a high single-digit tax rate. And as Ackman--now Allergan's leading shareholder with his Pershing Square Capital Management controlling a 9.7% stake--warned the company last week, there aren't too many companies out there who could help it avoid its unwanted fate if it doesn't begin talks with Valeant soon.

As Bloomberg reports, a couple of those financially able companies have already turned down the opportunity to swoop in and save Allergan. Sanofi was uninterested, while J&J cited difficulties in combining the U.S.'s two largest makers of breast implants, sources told the news service.

Allergan has also reportedly contacted GlaxoSmithKline ($GSK) and Novartis ($NVS), but some say Allergan's diverse offerings make it a tough buy: At a time when Big Pharma--led by those two companies, who recently completed a multi-billion-dollar asset swap--is looking to shed unnecessary divisions and focus on its strengths, an Allergan pickup could leave an acquirer with businesses it wouldn't otherwise venture into, Bloomberg notes.

There is, of course, still the possibility that Allergan itself could pick up a company and complete a tax inversion to dodge Valeant, and rumors have listed Shire ($SHPG) as high on the Botox maker's list. But Allergan has been down that path once with the Irish company already, who rebuffed its offer before talks really got off the ground, Reuters reported last month.

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