Allergan rejects Valeant and ‘unsustainable business model’ again

Valeant's takeover bid for Allergan has been once again rejected by the company's board - which has used increasingly vivid language to dismiss the unwanted advances.

Valeant and its 'activist investor' William Ackman raised their joint bid to $53 billion on 30 May. This total includes a contingent value right (CVR) worth up to $7.6 billion which would pay out in relation to the future success of DARPin, Allergan's ophthalmology drug currently in phase II, which could rival Novartis' Lucentis.

After more than a week of behind-the-scenes conferring, Allergan has responded with a unanimous rejection of the offer, saying it 'substantially undervalues' the firm.

David Pyott, Allergan's chairman and chief executive said the bid also "creates significant risks and uncertainties" for Allergan's stockholders and does not reflect future revenue and earnings growth or R&D strengths.

Allergan says its sales growth continues to accelerate and that it is generating "strong, long-term organic growth" fuelled by innovation and sales and marketing excellence.

The company's board was damning of Valeant's way of doing business as well as its bid. It criticised Valeant for having an 'unsustainable business model' relying on "serial acquisitions and cost reductions, as opposed to top-line revenue growth and operational excellence."

It added that there was a: "lack of clarity surrounding Valeant's growth potential because of Valeant's opaque pro-forma driven financial reporting, which provides, among other things, limited insight into how past acquisitions and products are performing."

Finally it also derided Valeant for "anaemic growth, which Allergan believes is primarily driven by significant price increases" and said the firm had set unrealistic post-merger saving targets "which Allergan is confident would destroy Allergan's long-term value."

Valeant has developed an aggressive growth strategy, with the aim of breaking into the pharma industry top five by the end of 2016, and has used a string of acquisitions to expand rapidly.

It is clear that some Allergan shareholders would be happy for the deal to go ahead, but are holding out to see just how high Valeant will raise its bid.

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Valeant increases Allergan bid to $49.4 billion