Valeant Plans to File Tender Offer This Week for Allergan

Valeant Pharmaceuticals International Inc. (VRX) plans to file a $54 billion tender offer this week for Allergan Inc., maker of the Botox wrinkle treatment, taking its hostile bid directly to shareholders.

“It is clear Allergan’s management and their board will never sit down and act in the interest of their shareholders,” Valeant Chief Executive Officer Michael Pearson said today on a conference call. “We are determined and patient. Time is on our side.”

Allergan, based in Irvine, California, has repeatedly rejected Valeant’s offers, including the latest cash and stock bid. To buy the drugmaker, Valeant teamed up with Pershing Square Capital Management LP, activist investor Bill Ackman’s hedge fund, that owns 9.7 percent of Allergan shares -- a stake amassed specifically to drive the deal.

Pearson today outlined his four-step plan for the hostile takeover. First, Laval, Quebec-based Valeant will make its tender offer to Allergan shareholders, then Ackman and other shareholders will hold a special meeting to remove most of Allergan’s board. Finally, Pershing Square and Valeant will propose new directors and negotiate with the replacement board to push through a deal.

Pershing Square has filed to start the process for the shareholder meeting, expected in November. On June 12, the hedge fund filed a lawsuit asking a Delaware Court to rule that such a meeting won’t trigger anti-takeover measures by Allergan.

Valeant shares have been under pressure since June 3, the day after the company said it would try and replace most of Allergan’s board. Its shares rose 1 percent to $118.87 at the close in New York, breaking a 10-day streak of losses. Allergan rose less than 1 percent to $160.53.

Key Shareholders

In response to a question on the call, Valeant Chief Financial Officer Howard Schiller said the company has debated repurchasing stock in light of weak share prices, though decided that option is off the table for now.

Valeant has talked to key institutional investors and found that “well north of 50 percent” of Allergan’s shares were bought by hedge funds and event-driven arbitrage traders since the offer was disclosed April 22, Schiller said.

Those shareholders will back the deal because they “bought in at a very high price, and well above what they believe the standalone value is and are interested in a transaction occurring,” he said.

Valeant’s CEO, responding to a question on the conference call, also defended its banker Morgan Stanley after Allergan yesterday revealed e-mails from a top executive at the investment bank attacking its now-client’s business model.

The e-mails were part of Morgan Stanley’s sales pitch last month to Allergan to help fight off Valeant. Allergan chose other advisers, and Morgan Stanley was instead hired by Valeant.

‘House of Cards’

In the e-mails, Robert Kindler, Morgan Stanley’s vice chairman of investment banking, called his now-client a “house of cards” with an unsustainable business model. In one message, Kindler wrote, “Allergan is not being nearly aggressive enough in going after the Valeant business model and currency.” Allergan’s criticism of Valeant’s bid has been along the same lines as what Morgan Stanley pitched.

“Whenever a deal like this is announced, every investment bank in the world wants to be a part of it,” Pearson said. “I don’t think it’s unusual that you see investment banks trying to get hired by both sides of a transaction, and then once they get hired they work as hard as they can to get the deal done.”

Pearson said he was happy to have Kindler on his side. He also noted Goldman Sachs Group Inc. was working to defend Allergan from his hostile bid despite having backed Valeant equity offerings and financings as recently as last year, Pearson said.

‘Things Happen’

“Interestingly, they spent lots and lots of time sort of ratifying our business model. They stood behind it and obviously said our currency was quite strong in terms of our stock price,” Pearson said. “And yet they’re serving Allergan. So things happen.”

Valeant wants to buy Allergan as part of its plan to join the ranks of the world’s top five drugmakers. It has raised its offer twice and been rejected and today stood firm on its latest offer. Valeant used the call to review its growth goals, and its plans to find cost savings in a merger with Allergan.

The company plans a portfolio review with scientists from both sides once the two companies combine, and will cut total annual research and development spending to $300 million to $400 million, Pearson said, compared to Allergan’s current $1.1 billion. He expects to pursue extending the company’s Botox and glaucoma product lines and developing eyelash growth treatment Latisse for hair.

Sales Force

Valeant has learned not to reduce the sales forces of the companies it acquires, yet still sees ample room to cut overhead and corporate costs, Pearson said. He reiterated confidence the company would continue to deliver organic growth between 5 percent and 10 percent.

The company is still in “the early innings” of its growth plan and will continue to make smaller tuck-in acquisitions and pursue larger deals as it expands into new areas beyond devices, consumer health care, pharmaceuticals and branded generics, Pearson said.

Valeant has also hired Barclays Plc and Royal Bank of Canada for the deal. Allergan has hired Bank of America Corp. and Goldman Sachs.

(An earlier version of this story misattributed a quote to Valeant’s chief financial officer.)

To contact the reporters on this story: Sonali Basak in New York at sbasak7@bloomberg.net; Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Drew Armstrong, Andrew Pollack

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