(Reuters) – The battle for botox maker Allergan Inc heated up on Tuesday as the company officially rejected a sweetened US$53 billion takeover offer from Valeant Pharmaceuticals International and activist investor William Ackman.
Since Canadian drugmaker Valeant and Pershing Square Capital Management made a joint bid for the company on April 22, Allergan has stood firm against entreaties to sit down at the table and negotiate a deal.
Ackman, who has a stake of almost 10 percent in Allergan, and Valeant raised their joint offer on May 28 and when investors were displeased and sold shares, added even more cash to it on May 30. He also said that he would call shareholders to a vote.
On Tuesday, Allergan once again declined the bid, saying that the offer undervalues the company and is too risky for shareholders. Allergan also reissued criticisms of Valeant’s business model, saying that its reporting of financial information was opaque.
“We do not believe your latest proposal offers sufficient or certain value to warrant discussions between Allergan and Valeant,” Allergan Chief Executive Officer David Pyott said in a letter to Valeant CEO Michael Pearson.
A Valeant spokeswoman said that given Allergan’s rejection, the company would move forward with its plan to take the deal to shareholders for a vote. The first step in that battle would be to elect a Valeant-Ackman backed board of directors at Allergan. A shareholder meeting to do that could be held in November.
“Valeant’s offer to combine with Allergan will create substantial value for both companies’ shareholders, and we look forward to giving Allergan shareholders the opportunity to speak for themselves,” Valeant spokeswoman Laurie Little said in a statement.
Pyott said in an interview with Reuters that he was in for a long slog.
“I’m an endurance player; I climbed Kilimanjaro last year,” Pyott said. He said shareholders wanted the company to use the US$14 billion in cash flow it would generate over the next five years for acquisitions.
Allergan can pursue other options, BMO Capital Markets analyst David Maris said. “We continue to believe that Allergan has many options, including a buyback, dividend, combination with others—or even some combination of these,” Maris said in a research note.
The offer, which includes US$72 in cash plus 0.83 Valeant shares, is currently worth about US$177 per share, or US$53 billion. The deal value is calculated based on 303.5 million diluted shares outstanding as of March 31, 2014, and Ackman’s holding of 28,878,638 shares.
Ackman was not immediately available for comment.
Allergan shares were down 0.6 percent at US$163.17 and Valeant shares fell 1.8 percent to $124.41 by around 1:30 p.m. (1730 GMT).
Allergan shares are far off the US$177 per share price implicit in the Valeant offer.
“It suggests that the market is still not going to go for it at the current price,” Morningstar Research analyst Michael Waterhouse said.
(Reporting by Caroline Humer and Ransdell Pierson in New York and Rod Nickel in Winnipeg, Canada; Editing by Chizu Nomiyama and Marguerita Choy)
Photo courtesy of Shutterstock