Just one day after the Wall Street Journal reported that Valeant ($VRX) had made a buyout bid for Zoetis ($ZTS), sending shares of the animal health giant up 11% to an all-time high of $55.48, investors started doubting the deal would happen. As of Monday's stock market opening, no details about the acquisition attempt had been released, and shares opened trading at just over $48--erasing all the gains that had come from the rumor.
Was it more buzz than substance? That seemed to be the sentiment on Friday. Even at the depressed price, Zoetis's market cap sits at nearly $25 billion--a big bite for Valeant, which recently closed its acquisition of Salix Pharmaceuticals.
A spokesman for Zoetis declined to comment on the takeover rumors.
In some ways, it would be no surprise if Valeant emerged as Zoetis's suitor. Zoetis has been under pressure from activist hedge fund investor William Ackman of Pershing Square Capital, who bought up about 8% of the company's stock and scored a couple of board seats for his allies. That fueled rumors that he would push for a sale of the company, which was spun off from Pfizer ($PFE) in 2013.
|Valeant CEO J. Michael Pearson|
Ackman owns 5.7% of Valeant, which was stung last year when it was outbid by Actavis in a quest to buy Botox maker Allergan ($AGN). Valeant CEO Michael Pearson repeatedly tried to quash rumors that his company was interested in Zoetis, even telling the Financial Times in January that it was "highly unlikely" there would be such a deal. He said he was more interested in a company that focuses on making therapies for cats and dogs. More than half of Zoetis's business comes from products for food-animal producers.
Other companies were rumored to be eyeing Zoetis, most notably Bayer. The company is expected to divest its MaterialScience unit and take it public by mid-2016, which would give it plenty of cash to make an acquisition in animal health, where it is currently the number-5 player. In May, Bayer CEO Marijn Dekkers reiterated his interest in growing the company's presence in animal health.
|Zoetis CEO Juan Ramón Alaix|
Zoetis, meanwhile, has been scrambling to cut costs as part of its bid to persuade shareholders it should stay independent. In May, during its first-quarter earnings call, CEO Juan Ramón Alaix and his colleagues detailed a plan to cut 5,000 underperforming SKUs and to close or exit 10 manufacturing plants. The company said it expected the changes to boost its operating margin from 25% in 2014 to 34% by 2017.
At the time, Alaix told FierceAnimalHealth the restructuring would make the company "much more focused in terms of products, markets, and everything that matters to our customers and our company." He said the company was also changing its approach to R&D by developing a smaller portfolio of products that would be the most likely to have the highest return on investment.
Shortly thereafter, Zoetis revealed its plans to cut 165 workers at its global headquarters in Florham Park, NJ. In a filing with the state, Zoetis said the cuts will be made by the end of 2016.