After serial acquirer Valeant ($VRX) lost a months-long takeover battle for Allergan ($AGN), many industry-watchers expected the company to restore its dealmaking reputation with another quick pickup. But the Canadian pharma may be heading in the opposite direction.
The company plans to take some time off from M&A and focus on cutting down debt and lifting its stock price, sources told Reuters. That way, in two or three quarters, it can come back to the buyers' table in a stronger position.
As Valeant spokeswoman Laurie Little told the news service, the "silver lining" to come out of the Allergan debacle was a relatively "clean quarter," or one lacking the one-time acquisition costs that abound on the company's financial statements. "By delivering several more clean quarters over the next several months, we will clearly show the strength of our base business," she said.
|Valeant CEO J. Michael Pearson|
The new path forward may raise a few eyebrows among those who expected Valeant to jump right back in the dealmaking saddle. Buyouts have been the name of the game for CEO J. Michael Pearson since he stepped into the CEO's role, with the company spending $19 billion on 40 acquisitions since 2008, according to Reuters.
And recent speculation about Valeant's next target had fueled share boosts for companies like Mylan ($MYL) and Teva ($TEVA). Others suggested the deal machine could be prepping another partnership with Allergan teammate and activist investor Bill Ackman, who recently acquired a stake in animal health company Zoetis ($ZTS).
But all things considered, it's not a bad time for Valeant to try to show the industry that its R&D-light business can hack it without gobbling up other companies. Allergan repeatedly criticized the company's model and questioned its ability to stand on its own two feet, before agreeing to sell itself to rival bidder Actavis ($ACT) for $66 billion.
Valeant "needs to show that this is a sound business and that their fundamentals are strong," BMO Capital analyst Alex Arfaei told Reuters. "If you go from one hostile deal to another, you are creating the impression that you're desperate. Valeant certainly has some strong signs of growth and is anything but desperate."
That, of course, doesn't mean pickups are completely out of the question for the time being, Little told Reuters. While its focus is on its ability to pay down debt or buy back shares, it won't rule out pursuing deals where appropriate, she said.
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