Reuters: Allergan broached deal with Shire before Valeant's hostile bid

Bill Ackman

Allergan may have to buy a foreign company and complete a tax inversion if it wants to dodge a hostile takeover bid by Valeant Pharmaceuticals ($VRX). But a recent attempt to bulk up didn't work out so well, Reuters' sources say.

Ireland's Shire ($SHPG) recently rebuffed an approach from the California-based drugmaker about a possible acquisition, the news service reports, citing unnamed people familiar with the matter. And now that Allergan ($AGN) is in need of a pickup to ward off Valeant's unwanted advances, it's unclear whether it will try to strike up those talks again or go after another target.

In the meantime, Allergan has adopted a poison pill strategy--possibly to hold out for more than the $47 billion offered by Valeant and partner Bill Ackman, now Allergan's largest shareholder after quietly amassing a 9.7% stake earlier this year. But that won't help the company much if its shareholders like what Ackman and Valeant have to offer, which includes a high-single-digit tax rate.

Analysts have suggested that relocating its base to a country with its own low tax rate would be the best way for Allergan to maintain its independence, and with its 12.5% corporate tax rate--compared with 35% in the U.S.--Shire's home base, Ireland, certainly qualifies. U.S.-based drugmakers Actavis ($ACT) and Perrigo ($PRGO) are among a slew of companies that have recently cashed in on the tax haven, buying Warner Chilcott ($WCRX) and Elan ($ELN), respectively, to take advantage of their Irish addresses.

For that reason, Shire--along with neighbors like Jazz ($JAZZ) and Alkermes ($ALKS)--has been the subject of buyout buzz before, last year reportedly enlisting help to fight a potential unwanted takeover amid swirling rumors that a hostile bid was on the way. But the drugmaker has since made a move of its own, beating out Big Pharma players to land orphan drugmaker ViroPharma ($VPHM) as part of its attempt to diversify beyond its bread-and-butter ADHD franchise.

But even if Allergan can't snag Shire--or another foreign peer--it shouldn't give up hope just yet, analysts say. They've counted companies like Nestlé, Sanofi ($SNY) and GlaxoSmithKline ($GSK) among potential white-knight candidates that may swoop in to top the Canadian drugmaker.

Allergan may prefer one of those suitors to the cost-cutting, anti-R&D-oriented Valeant, which instead builds its pipeline as a serial dealmaker. Shared focuses on healthcare and eye care aside, the two companies are on "completely opposite sides of the drug industry," Sanford Bernstein analyst Ronny Gal told The Wall Street Journal this week. But Valeant CEO J. Michael Pearson remains convinced he'll be able to persuade the company's shareholders, telling CNBC earlier this week that he thinks the deal will still get done.

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