It looks like Valeant will have to work a lot harder to consummate its proposed $45.7bn marriage with Allergan, after its intended agreed to implement a ‘poison pill’ defense.
Allergan’s board voted in favour of a shareholder 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.
Quebec-based Valeant’s financial partner in the offer – billionaire Bill Ackman’s Pershing Square Capital Management – already has a 9.7 per cent stake in the manufacturer of wrinkle treatment Botox (onabotulinumtoxinA) and other specialty drugs, according to documents published by Valeant yesterday.
Perhaps hoping to flush out any other interested parties, Allergan said its plan “is not intended to prevent an acquisition of the company on terms that the Board considers favourable [but] aims to provide the board with adequate time to fully assess any proposal”.
Under the terms of the plan, Allergan’s shareholders will have the right to purchase common shares in the company at a steep discount. It will run between May 8, 2014, and April 22, 2015.
Valeant has been enormously successful in pursuing a strategy of buying companies with strong specialty pharma brands, bolstering its product portfolio while stripping out costs. The company expects to be able to remove $2.7bn from the combined company’s annual cost base, with the bulk of that coming within just six months of the merger going through.
The policy has served the Canadian firm’s shareholders well, although some seem to be concerned that it might eventually overreach itself. For instance, absorbing Allergan would see Valeant’s debt burden swell to a hefty $28bn, while Allergan has such bright prospects in the coming years that its investors may wholeheartedly resist the bid, seeing more value in a standalone company.
Complicating the scenario are suggestions that Pershing may have sailed a little close to the wind by building up a stake in Allergan ahead of the bid announcement, although Ackman strenuously denies any violation of US securities law.