Actavis Plc is in talks to acquire Allergan Inc. for at least $60 billion, and striving to reach a deal that would help the Botox maker rebuff Valeant Pharmaceuticals International Inc.’s hostile advances, said people with knowledge of the matter.
The companies are trying to narrow a gap of about $3 billion between what Actavis wants to pay and what Allergan is asking, said two of the people, asking not to be identified discussing private information. The maker of anti-wrinkle treatment Botox is seeking more than $210 a share while Actavis wants to pay closer to $200, said two of the people.
The companies may be able to reach a deal this month, the people said. A deal with Actavis would provide Allergan’s shareholders an alternative to Valeant, which has said it’s willing to pay at least $200 a share and has the backing of Allergan’s largest shareholder - activist investor Bill Ackman’s Pershing Square Capital Management LP.
“I don’t think that Valeant can outbid Actavis,” said John Schroer, sector head of U.S. health care at New York-based Allianz Global Investors, which owns shares of Allergan and Actavis.
Part of Valeant’s promise to increase its bid to at least $200 a share depends on an anticipated increase in its stock price, the company said in a letter to Allergan’s board last month.
“I’ve never heard of such a sales pitch,” Schroer said.
In resisting Valeant, Allergan has described its offer as “grossly inadequate” and argued the Canadian company will gut its research and development budget and use its cash flow to pay down debt accumulated from previous acquisitions.
Dec. 18 Deadline
Any offer from Actavis will likely include its own shares as well as cash, the people said.
Although the talks could drag on, and there’s no certainty that the two sides will reach an agreement, Allergan is trying to strike a deal before an investor meeting on Dec. 18, the people said. That’s when shareholders will vote on Valeant and Ackman’s proposal to remove Allergan directors, with a plan to eventually replace them with those who are more amenable to Valeant’s offer.
“These things are very large deals, no guarantees, but it’s an attractive deal and they have plenty of time to get this done,” said Schroer.
Actavis, which makes generic drugs and products like Alzheimer’s treatment Namenda, first approached Allergan about a takeover in August, a person familiar with the matter has said, and talks between the two companies recently restarted.
The disclosure earlier this month that Allergan was in talks with a third party prompted Ackman to call on the company to run an auction.
“Now that the company is seriously considering a sale, it is incumbent upon the board to maximize shareholder value by running a sale process that will generate the highest value,” Ackman said in a letter to Allergan’s board last week.
Representatives for Allergan, Actavis and Valeant all declined to comment today.
Irvine, California-based Allergan rose 0.6 percent to $196.51 at the close in New York today, giving the company a market value of about $58.5 billion.
Actavis fell 1.24 percent to $240.62, giving it a market value of about $64 billion, while Laval, Quebec-based Valeant rose to $131.09. Valeant’s market capitalization is closer to $44 billion.
Valeant set the low end of the bidding at about $200 a share when the company said on Oct. 27 that it is willing to bump its cash and stock offer -- currently valued at about $180 a share -- to that amount.
The Canadian company has said it’s seeking to buy Allergan to expand its portfolio and become one of the world’s largest drugmakers. Pershing Square acquired its 9.7 percent Allergan stake after learning of Valeant’s intention to make a bid, and Allergan has accused Ackman of violating insider trading rules.
It unsuccessfully sued to stop him from voting his shares in the Dec. 18 meeting. Ackman has said that he welcomes a review by the Securities and Exchange Commission of Pershing Square’s tactics and that it did nothing wrong -- acting as a co-buyer, alongside Valeant.
Allergan today announced amendments to its bylaws, making it easier for shareholders to call a special meeting. Ackman had accused the Botox maker of having overly complicated bylaws that made it hard to call the Dec. 18 shareholder meeting.