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Valeant sweetens Allergan offer with help from Nestle deal

Will divest skincare treatments to sidestep product conflict issues
Valeant Pharma logo

Valeant has raised its offer for Allergan to around $50bn after agreeing a deal with Nestle to sidestep a potential antitrust issue with the takeover.

The Canadian company is offering $58.30 a share for Botox (onabotulinumtoxinA) manufacturer Allergan - $10 up on its earlier bid - and has also agreed to divest a portfolio of skincare assets to Nestle for $1.4bn that includes Botox rival Dysport (abobotulinumtoxinA).

Valeant's chief executive Michael Pearson said in a letter to his opposite number at Allergan David Pyott that the raised offer was based on feedback from Allergan's own shareholders.

It now factors in the value of Allergan's DARPin programme for ophthalmic diseases, which the company believes could bring in $20bn in its first 10 years on the market and was considered a likely casualty of cost-cutting in R&D if the original takeover offer went through.

Pearson said Valeant is now putting $400m of R&D funding on the table for the project and is agreeing to set up an independent board to monitor the DARPin programme as it proceeds through development, as well as offering additional shareholder payments if its promise is fulfilled.

Allergan has resisted Valeant's advances - backed by billionaire Bill Ackman's Pershing Square Capital Management - via a rights plan that gives existing investors greater voting powers in the event that any one shareholder gains control of more than 10 per cent of its stock, and has repeatedly said that merging the two companies would be an exercise in value destruction.

In the latter, Pearson insists that Pyott and the rest of Allergan's board do not understand Valeant's business model and that a statement issued this week rebuffing the earlier offer has "a number of inaccuracies."

Allergan's document raises questions about the sustainability of Valeant's acquisitive business, suggesting revenue growth is driven mainly by price increases that - in the case of its largest purchases Medicis and Bausch & Lomb - compensate for the erosion of sales and market share of key brands.

"Valeant's model of taking on debt to serially acquire companies will become incrementally harder to do as interest rates move higher," says the report.

It also discusses the potential risk from Valeant's "multiple off-shore tax deferral structures", focusing attention once again on the strategies employed by big corporations to reduce their tax burden and - hypothetically - the potential for intervention by lawmakers.

Similar debate emerged during Pfizer's aborted takeover of AstraZeneca with commentators suggesting a deal would heighten scrutiny of US corporations domiciling overseas to tap into more favourable corporation tax rates.

For its part, Valeant claims to have the backing of a cadre of Allergan investors who "have continued to express enthusiasm about our potential business combination," and urges Allergan to come to the negotiating table.

Nestle pushes further into skincare

Meanwhile, Valeant's side deal will see North American rights to Dysport and dermal fillers Restylane, Perlane and Emervel transfer to Nestle, which will distribute them through its Galderma dermatology unit that already sells the products elsewhere in the world.  Galderma also gains worldwide rights to Valeant's own Sculptra dermal filler product.

The Swiss food giant took overall control of Galderma - a joint venture originally set up with L'Oreal in the 1980s - earlier this year as part of a strategy to break into higher-margin healthcare businesses

Pearson said divesting the product rights eliminates a "roadblock" in its proposed integration with Allergan.

Article by
Phil Taylor

29th May 2014

From: Research, Sales



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