Allergan poison pill presages a battle against Valeant's $47B takeover

Bill Ackman

Valeant ($VRX) may think Allergan ($AGN) is a great buyout fit, as evidenced by the $47 billion bid it made for the California company Tuesday. But Allergan may feel differently--at least at the current offering price.

The Botox maker has taken up a poison pill plan, a defense that blocks Valeant partner Bill Ackman from significantly amping up his 9.7% stake. And as The Wall Street Journal notes, it effectively prevents Valeant from taking its hostile bid straight to shareholders.

As Allergan said in a statement Tuesday, its board needs more time to look over the unsolicited cash-and-stock offer Valeant CEO Pearson and activist investor Ackman made public earlier that day. But as Bloomberg reports, analysts and investors alike view the offer--which valued Allergan at 21 times its profit at the time of announcement--as too low, and Allergan may be blocking the Canadian company's advance to hold out for something better.

"Allergan is probably one of the best companies in our space," Sterne Agee analyst Shibani Malhotra told the news service. "They will do everything they can to fight this."

With the defense mechanism in place, Ackman--now Allergan's largest stakeholder after amassing his share earlier this year under the company's radar--can't significantly build his position. But that hasn't discouraged dealmaking aficionado Pearson. "We are disappointed, but on the other hand, I think this deal will get done," he told CNBC.

It may take more than a better offer from Valeant to win over Allergan's board--if the Canadian company has the capability to do it at all. According to The Wall Street Journal, Pearson first approached Allergan CEO David Pyott 18 months ago about a deal, a proposition Allergan rejected a few weeks later. Major differences in modus operandi may be behind the company's resistance, a source told the WSJ.

As the paper notes, Allergan spends 17% of its revenue on R&D, a pursuit Pearson has tagged as both risky and avoidable. Valeant puts aside only 3% for R&D--down from the 12% it allotted before Pearson took the reins--instead making deals to pick up new products and squeeze costs from the combined companies.

In that sense, despite shared focuses on healthcare and eye care, Valeant and Allergan are on "completely opposite sides of the drug industry," Sanford Bernstein analyst Ronny Gal told the WSJ.

Shareholders, on the other hand, shouldn't be too hard to persuade, Pearson figures, what with the $2.7 billion in synergies and the low tax rate that a buyout would bring them. But he may have to ward off other suitors in the meantime: Malhotra listed Sanofi ($SNY), Nestlé and GlaxoSmithKline ($GSK) as possible white knights, with Morningstar analysts counting Novartis ($NVS) and Johnson & Johnson ($JNJ) as potential counterbidders, Bloomberg says.

- read the release from Allergan
- get more from the WSJ here and here
- see Bloomberg's take

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

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