|Valeant CEO J. Michael Pearson|
Valeant's ($VRX) $47 billion bid to buy eye-drug giant Allergan ($AGN) is far from a done deal, but that isn't stopping Valeant's management team from making big promises to investors about what might happen after the acquisition. While briefing a few of Allergan's largest investors, Valeant's top brass said it would consider splitting up the company if it became too big to support its aggressive M&A strategy, according to Reuters.
Valeant's growth has come almost entirely through acquisitions, which is a strategy that some analysts--not to mention Allergan CEO David Pyott--have criticized as unsustainable. Valeant's managers told shareholders that if they broke the company into smaller business units, those entities could continue pursuing roll-up strategies of their own, according to Reuters. Valeant has vowed in a letter to Allergan that it would respond to concerns about its operating model on May 28.
The breakup notion is something of a head-scratcher: Valeant CEO J. Michael Pearson has made no secret of his goal to turn the company into a top 5 pharmaceutical powerhouse by 2016. Towards that end, Valeant has spent $19 billion acquiring 35 companies in the past six years, capping off its M&A spree by spending $8.7 billion to buy Bausch + Lomb last year. Now it wants Allergan, which would not only boost its presence in the red-hot market for eye care products, but would also bring it the blockbuster wrinkle eraser Botox.
Pearson, who is pursuing Allergan with Pershing Square's Bill Ackman, could be trying to demonstrate to Allergan investors that he's not all about buying companies and cutting costs. He's certainly promising more money: Pearson plans to sweeten his offer on May 28, he wrote to shareholders early last week. Ackman also wrote a letter to shareholders, which proposed a nonbinding vote that would nudge Allergan into talks with Valeant. Allergan's board continues to resist negotiations, though, and it recently swallowed a poison pill to prevent Ackman from boosting his 10% stake in Allergan's stock.
Allergan is also looking for other deals that might help fend off Valeant's advances. Johnson & Johnson ($JNJ) and ($SNY) have already turned down the opportunity to rescue Allergan from Valeant's advances. Allergan once made a bid for Shire ($SHPG), and could very well do so again, but Ackman is skeptical. He told shareholders that Allergan is in a "good position" to make a deal with Valeant now, but that it may not hold such power in the future.
- here's the Reuters story
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