Allergan rebuffed Actavis bid, saying it's 'closing in' on a $10B-plus Salix buy

Allergan ($AGN) might have had a reason to play nice with Valeant Pharmaceuticals ($VRX). When the two companies agreed to set a special shareholder meeting about Valeant's hostile bid, Allergan was busy with two other potential deals.

As The Wall Street Journal reports, Allergan's buyout talks with Salix Pharmaceuticals ($SLXP) are on, and those talks could block the Allergan board shuffle key to Valeant's buyout plans. If Allergan chief David Pyott can swing an all-cash Salix buyout, his board wouldn't have to approve the deal--and Allergan plus Salix would be a much harder company for Valeant to swallow.

Plus, there's a potential white knight in the picture: Actavis ($ACT) made a bid for Allergan last month, the WSJ says. Allergan rejected the offer--citing its Salix takeover hopes--but Actavis remains interested in a friendly deal. If the Salix buyout runs aground, Actavis could be a more attractive merger partner.

Valeant, after all, has plans to squeeze costs, including Allergan's R&D spending, and Valeant CEO J. Michael Pearson is known for ruthless cuts. That's not something Pyott and his team welcome. Actavis, by contrast, promised to leave Allergan's R&D intact, the WSJ reports.

According to the newspaper, Allergan told Actavis that it was "closing in on its own takeover," with an all-cash deal for Salix likely valued at more than $10 billion. At the time Allergan said the Salix buy could be announced "late this week or next."

Obviously, no announcement has come yet. Unless and until another deal emerges, Valeant and its deal partner, Bill Ackman's Pershing Square Capital Management, will still be in line to persuade shareholders to oust 6 Allergan directors and replace them with others more friendly to their merger plans.

What's the case for a Salix buyout, besides the obvious defensive maneuver? According to Sterne Agee analyst Shibani Malhotra, Allergan would see a 14% boost to earnings next year. Cost cuts would be in the offing, with potential savings of more than 3% off the combined company's burden, or about $148 million, Sterne Agee figures.

Longer-term revenue growth potential is there, too, though Allergan is somewhat new to the gastrointestinal market, where Salix's product line is concentrated. "[W]e believe Allergan's track record of building new markets makes the company an excellent option to drive the next leg of growth for Salix's core assets," Malhotra said in a note to investors Tuesday.

- read the WSJ piece

Special Reports: Pharma's top 10 M&A deals of 2013 - Valeant/Bausch + Lomb