Valeant Raises Takeover Offer for Allergan a Second Time

Valeant Pharmaceuticals International Inc. raised its unsolicited offer for Allergan Inc. a second time, to about $53.3 billion, increasing the cash portion of the bid in an effort to win the backing of the company and its investors.

Holders of Allergan, the maker of the Botox anti-wrinkle treatment, would get $72 a share in cash -- up from $58.30 -- and 0.83 of a Valeant share under the sweetened offer, Laval, Quebec-based Valeant said yesterday in a statement. The cash-and-stock portion of the bid, $179.25 a share using Valeant’s closing price of May 29, valued Irvine, California-based Allergan at about $53.3 billion based on 297.6 million shares outstanding, according to data compiled by Bloomberg.

Pershing Square Capital Management LP, Bill Ackman’s hedge fund, which is using its 9.7 percent Allergan stake to push the deal, agreed to continue to forgo the cash portion of the offer. Pershing Square yesterday sweetened the incentive for other shareholders by agreeing to a lower value basis for its stake -- which the hedge fund calculated as a discount amounting to $20.75 a share.

Pershing Square met May 29 with most of Allergan’s biggest shareholders who indicated the deal could get done at a valuation of $180 a share, a person familiar said. Pershing said it would give up part of its potential gain if Valeant Chief Executive Officer Mike Pearson increased the offer for other shareholders, according to the person, who asked not to be identified because the discussions were private.

Allergan acknowledged Valeant’s proposal in a statement yesterday and said the board of directors will consider the new proposal once it is received. Allergan advised shareholders to take no action at this time.

Added Value

The sweetened offer includes a contingent value right of as much as $25 a share based on the performance of an experimental eye drug from Allergan. Valeant introduced the CVR in its revised offer on May 28.

The deal would be Valeant’s largest, adding to Pearson’s aim to join the ranks of the world’s five biggest drugmakers by the end of 2016. Analysts had expected Allergan investors would respond to a deal that was closer to $185-$190 per share. Allergan had said Valeant’s first offer on April 22 was “substantially undervalued” and urged shareholders to take no action on the second bid.

“I have no idea how they’re going to explain it,” David Maris, an analyst with BMO Capital Markets Corp. in New York, said of Valeant’s action. “It’s a big credibility issue.”

Tactic Questioned

Valeant’s revised bid was made just two days after raising its offer for the first time. “Valeant’s CEO said he wouldn’t negotiate again against himself -- Allergan hadn’t even had a chance to respond yet,” Maris said. He wrote in a note to clients that the deal is still substantially undervalued.

Allergan shares gained 5.7 percent to $167.46 at the close yesterday in New York. Valeant gained 1.5 percent to $131.21.

Allergan told investors on a May 12 conference call that its eye drug DARPin has the potential for $20 billion of sales in its first 10 years on the market.

“Allergan shareholders want this deal to occur, but they wanted a higher price,” Pearson said on a May 28 webcast, when Valeant raised its the offer for the first time. “A lot of them wanted the optionality of DARPin.”

Valeant originally offered $48.30 in cash and 0.83 of a Valeant stock, without a CVR, on April 22.

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