With a months-long hostile pursuit from Valeant ($VRX) and failed talks to buy North Carolina's Salix ($SLXP), Allergan ($AGN) had already been on an M&A roller coaster this year before finally agreeing to sell itself to Actavis ($ACT) last month. And options traders, for one, are afraid the ride's not over yet.
They're gearing up for the potentiality that buyers go after Actavis itself and the deal between the two collapses by upping protection in Allergan, Bloomberg reports. Merger arbitragers have seen the tables turn quickly, with buyers becoming surprise targets. And especially considering inversion-minded Pfizer ($PFE)--once rumored to be interested in Actavis--is still scouting for pickups, they're exercising caution.
"The arbitrage community doesn't want to get killed again with this one," MKM's head of event-driven strategy told the news service. "There have been stories about Pfizer engaging in talks with Actavis. You've had a few instances this year where the acquirer became the target, and suddenly you were losing money on both your long and your short. You want to be careful."
|Pfizer CEO Ian Read|
Indeed, Pfizer CEO Ian Read has said that new, stricter U.S. rules that make it more difficult for companies to invert--rules that have already dissolved mergers like AbbVie's ($ABBV) $55 billion Shire ($SHPG) pact--won't stop his company from shifting its tax base abroad "if the value is still there." And word on the street is the company's been eying Dublin-based Actavis, which could help it both beef up its established products unit--widely seen as Pfizer's first prospect for another sale or spinoff--and add some new treatments to its ailing branded stable.
Of course, if it's just a tax break Pfizer wants, there are "many ways for them to skin that cat," Ota Limited Partnership's Scott Houlihan, who thinks the risk of the deal failing is low, told Bloomberg. Among them: making a second play for British pharma giant AstraZeneca ($AZN), a possibility analysts haven't yet completely ruled out.
But for traders, it's reason enough to tread lightly. "People are worried about even the slightest risk of something bad happening here," Polar Capital Holdings' Gareth Powell told the news service. "There have been so many deals that have fallen apart."
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Special Reports: Pharma's top 10 M&A deals of 2014's first half | The top 10 pharma companies by 2013 revenue - Pfizer | Top 10 generics makers by 2012 revenue - Actavis