Valeant increases Allergan bid to $49.4 billion
Valeant has raised the cash component of its takeover bid for Allergan to $49.44 billion, increasing pressure on the firm to accept the unsolicited offer.
Quebec-based Valeant has already made waves by using a series of mergers and acquisitions to produce rapid expansion, acquiring six firms in the last two years alone.
It has set its sights on the hugely ambitious target of breaking into the pharma industry top five by the end of 2016. But Allergan is refusing to play along, and its chief executive Peter Pyott has criticised Valeant for a ‘slash and burn’ approach to post-merger cost-cutting.
Allergan is best known for injectable Botox, which is used as to smooth out wrinkles in the forehead, but is also licensed to treat a range of medical conditions. The company also has a large ophthalmology portfolio, including Restasis, for chronic dry eye.
Valeant is using all the financial leverage it can to force Allergan to accept its bid. Included in the new offer bid is a contingent value right (CVR), 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. The CVR would potentially give shareholders an extra $7.6 billion.
Valeant has also just agreed a deal sell some of its existing skincare products, including facial fillers for treating wrinkles, to Nestle for $1.4 billion in cash. It plans to use this windfall to pay for its Allergan bid; the sell-off of the facial fillers also removes potential monopoly concerns about a merged Allergan portfolio.
Allergan has also adopted a ‘poison pill’ provision to obstruct a hostile takeover, and is said to be looking for ‘white knight’ companies to offer an alternative merger partner.
Valeant’s chief executive J. Michael Pearson has written an open letter to wrote that Allergan, trying to persuade its board to accept the latest bid. Pearson said Allergan seemed to have a “fundamental misunderstanding of our business model and its performance,” adding: “We would be delighted to provide you and the Allergan board with the opportunity to better understand our business model and address any concerns that you may have.”
In common with a number of other current merger proposals, Valeant’s plan is to use ‘tax inversion’ to minimise the tax paid by the merged company. Allergan would be merged into Valeant and then some of its intellectual property would be relocated to Ireland, where corporate taxes are lower than the US.
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