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Valeant dangles higher bid in front of Allergan shareholders

Proposes $200 a share deal

Valeant dangles higher bid in front of Allergan shareholdersValeant has upped the ante in its war of words with takeover target Allergan, telling the latter's stockholders in a letter it could raise the value of its offer to "at least $200 a share."

Chief executive Michael Pearson said in the letter that he is "confident that an increase in our stock price, and in consideration, will provide that value", arguing that Allergan's share price - currently soaring at more than $180 - has been artificially inflated by Valeant's interest.

The letter comes as Allergan posted stellar financial results, with revenues rising 18% to $1.79bn and earnings per share (EPS) up 45% to $1.78, and was dismissed by the Botox manufacturer's management as "simply a tactic to distract investors from Allergan's outstanding third quarter results."

The company's chief executive David Pyott told investors yesterday: "all we saw was an offer to negotiate [with] no formal increase in the offer price."

"I would assume that there was an assumed increase in the Valeant stock price to corroborate those numbers," he added.

This view was echoed by BMO Capital Markets' David Maris, who said in a research note that the wording of the letter " sounds less like a $200 offer than a promise of a future stock price rise."

"We believe Allergan holders are increasingly convinced that Valeant's primary interest is in deleveraging, and not strategic in nature," continued Maris.

Valeant teamed up with activist investor Bill Ackman in April to make a hostile offer for Allergan, after earlier advances were rebuffed, with its latest bid valuing the US firm at around $53bn or $176 per share.

Pearson insists in the letter that "no other potential acquirer of Allergan has the operational and tax synergies that we have, and no other potential acquirer of Allergan can provide the value that we can." He also urges Allergan's board to come to the negotiation table ahead of a shareholder meeting - scheduled for December 18 - at which it will try to unseat several Allergan board members.

Valeant reported its own set of record financial results last week, headlined by a 33% hike in third-quarter revenues to $2.1bn, cash EPS up 48% to $2.11 and net debt trimmed down to $15.5bn.

Given that the company has not made any other acquisitions since starting its pursuit of Allergan the quarter provides one of the first opportunities to look at underlying growth in the business, although it is hard to determine the relative effects of price and volume increases on its top line.

Allergan has repeatedly claimed that Valeant's business model is flawed and overly-dependent on cost cutting, which it says would jeopardise the value in its R&D pipeline.

Either way, analysts seem sceptical that Valeant's latest overture will tip the balance in its favour, with Sterne Agee suggesting "we doubt that Allergan management or investors would view a $200 per share offer from Valeant as providing an adequate premium to standalone fair value," given Allergan's improving business fundamentals.

Allergan is still not ruling out making either its own acquisition, or a merger with another firm, in order to become too large for Valeant to afford. It has been linked in recent weeks to Shire - just left at the altar by AbbVie - as well as Salix and Actavis.

Article by
Phil Taylor

28th October 2014

From: Research, Sales



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