Allergan has few alternatives to Valeant
Valeant Pharmaceuticals’ (NYSE:VRX) hostile bid for Allergan (NYSE:AGN) leaves the Botox maker with limited options to fend off the aggressive approach.
On Tuesday, Valeant made a public offer for Allergan valued at USD 48.30 cash and 0.83 share of Valeant common stock for each Allergan share. The move came a day after Bill Ackman’s Pershing Square Capital said it had amassed a 9.7% stake in Allergan and was working with Valeant on the takeover.
At least initially, Allergan is expected to resist the bid, Bernstein Research analyst Aaron Gal said. Irvine, California-based Allergan said it would evaluate the offer with the help of Goldman Sachs, BofA Merrill Lynch and Latham & Watkins. A spokesperson declined to comment.
Allergan’s board of directors can try to make a strong case for why it should remain independent, one banker said. The company can cut costs and promise investors a higher growth rate, Gal said.
Another option would be for Allergan to explore a sale and reach out to potential buyers, who may be willing to pay more than price-disciplined Valeant, a second banker said.
France-based Sanofi (NYSE:SNY) may evaluate a potential tie-up, the first banker said. Conglomerate Nestle (VTX:NESN), which in February acquired dermatology company Galderma, may also take an interest, Gal said. Nestle could combine its prescription and over-the-counter skin treatment maker Galderma with Allergans’s focus on dermatological products, the analyst said.
But it may be a hard sell Allergan to mainstream pharmaceutical buyers, as Allergan’s products sell to different physicians, so there would be less synergies than with Valeant, the first banker said. The same banker said large pharma companies are looking at targets in the oncology, orphan drugs and Hepatitis C space and dermatology and ophthalmology are not necessarily focus areas for them.
Alternatively, Allergan could look to make an acquisition which would act as a poison pill, a third banker said. CEO David Pyott has previously said that he is looking to do deals and could raise up to USD 10bn to finance a transaction.
The company has faced pressure to pursue a so-called tax inversion deal to lower its tax rate and has previously looked into the idea, the first banker said. Ireland-based Shire (NASDAQ:SHPG) has been named as one possible target, Gal said.
The very public manner of the hostile bid may be a way for Valeant to test the waters to see how both companies’ stocks react, the second banker said. Valeant will not make an all-cash bid, Valeant CEO J. Michael Pearson said on a conference call on Tuesday.
The fast-growing Canadian pharma group is known as a disciplined buyer, most notably losing out on its bid for Cephalon to Israel’s Teva (NYSE:TEVA) by a wide margin. More recently, Valeant lost a bid for eye health company ISTA to Bausch + Lomb. It later acquired the winning bidder.
The unusual deal structure, with activist investor Bill Ackman’s Pershing Square agreeing to take an almost 10% stake in Allergan and publicly expressing his support for the deal, provides Valeant with a little more certainty, the second banker said.
While the two companies overlap across certain markets, Valeant has already contacted the Federal Trade Commission to discuss the antitrust review process, Pearson said on today’s call.
Valeant has identified its Botox competitor Dysport, and wrinkle-fillers Restylane, Perlane as product lines that would need to be divested, and contacted potential buyers for the assets, Pearson said. The divests will not be material to the transaction.
Antitrust regulators will likely issue a second request for any deal, but it is usually easy to provide remedies in pharma deals, an antitrust attorney said.
Allergan probably will not use antitrust risk as a defensive mechanism, the attorney added. It could use the risk to demand a strict merger agreement, he said. Selling companies sometimes demand buyers to agree to take all actions necessary to appease regulators.