Rumor has it Allergan ($AGN) is scouting about for acquisition targets and white knights to help it dodge an unwanted Valeant Pharmaceuticals ($VRX) takeover. But activist investor Bill Ackman, who has teamed with the Canadian pharma on the pickup bid, doesn't necessarily think that's a good idea.
In a Monday letter to Allergan lead director Michael Gallagher, Ackman warned against alternative deals that might offer less value than the $47 billion proposal he and Valeant put forth last month.
"Even if Allergan were able to identify a transaction that offers a higher cash value than the estimated value of the Valeant proposal at the time of transaction closure, we do not believe such a cash transaction would be necessarily superior to Valeant's stock and cash offer," wrote Ackman, who controls a 9.7% Allergan stake.
Allergan's board may beg to differ. Reports have suggested it's averse to Valeant CEO J. Michael Pearson's way of doing things, which involves lots of M&A and job-chopping, but little R&D. The California-based company recently swallowed a poison pill to limit Ackman's power to build his ownership position, and since then, some market-watchers have said it may be readying a second bid for Ireland's Shire ($SHPG).
As for that option, Ackman said he was skeptical that it "would be superior to the Valeant transaction," as it would lack the "strategic rationale" of a Valeant combo. While buying up the tax-advantaged Shire would neutralize the tax benefits Pearson and Ackman have promised for a merged company, there's still the prospect of Pearson's signature cost savings--$2.7 billion, Ackman expects--that Allergan hasn't accounted for.
As far as searching for a different suitor, Ackman said that approach makes sense. Allergan has reportedly reached out to Johnson & Johnson ($JNJ) and Sanofi ($SNY) to assess their interest in acquiring the company, and sources told Bloomberg last week that both were weighing their options.
But Allergan should also begin talks with Valeant, he admonished. There aren't too many companies with the financial heft to get a deal for Allergan done, and Pearson has suggested he may be willing to sweeten his bid if the discussion gets going in the near future.
"Today, Allergan is in a good position to negotiate with Valeant," Ackman wrote. "This many not always be the case."
Special Reports: The most influential people in biopharma today - J. Michael Pearson - Valeant | Pharma's top 10 M&A deals of 2013 - Valeant/Bausch + Lomb