Allergan Formally Rejects Valeant's $46 Billion Takeover Bid -- 2nd Update

By Dow Jones Business News, 

By Joseph Walker and Michael Calia

Allergan Inc. formally rejected a $46 billion unsolicited takeover bid made by Valeant Pharmaceuticals International Inc., saying the proposal substantially undervalues the Botox maker.

Allergan Chief Executive David Pyott defended his company's aggressive spending on research and development and sales and marketing, which he said had enabled Allergan to launch several new products in recent years and increase annual sales by an average of 11% since 2011. In a presentation to analysts, Mr. Pyott sought to contrast Allergan's approach, which he described as investing in innovation, with Valeant's reliance on cost-cutting.

"Valeant's method of cutting and slashing doesn't hold up for more than a brief period of time," Mr. Pyott said. " We question how Valeant could maintain Allergan's sales growth, especially considering the significant cost reductions Valeant is proposing."

Valeant has criticized Allergan's spending, and has made cost-cutting a cornerstone of its proposal to merge the companies.

"We are disappointed that Allergan has rejected our value-creating offer without engaging in any substantive discussions with Valeant or Allergan's largest stockholder, Pershing Square," a Valeant representative said in an email.

Mr. Pyott said Allergan's board also has "concerns" regarding Valeant's business model and the "inherent value" of Valeant's stock price.

Valeant, teaming with activist investor William Ackman's Pershing Square Capital Management, made public its bid to buy Allergan in April. Valeant, which owns brands such as Bausch & Lomb, had been seeking a deal with Allergan for a while before that, Valeant has said.

Last week, Valeant said it would go directly to Allergan's shareholders if Allergan didn't enter into negotiations over Valeant's offer. Valeant said it would seek to hold a special meeting of Allergan shareholders and have some or all of the company's directors removed.

Under Allergan's bylaws, a special meeting can be called if at least 25% of the company's shareholders request one in writing. A vote could then be held to remove board members.

Allergan's rejection had been expected as Allergan has adopted a so-called poison pill defense against the deal, particularly as Mr. Ackman had built up his stake in the company. Under the plan, if any unapproved investor acquires more than 10% of Allergan's shares, other stockholders would have the right to buy discounted shares.

Mr. Ackman had disclosed a 9.7% stake in Allergan in April.

Allergan issued 2015 guidance for the first time Monday, saying it now expects 20% to 25% growth in earnings per share next year, and double-digit revenue growth. Analysts polled by Thomson Reuters had forecast a 17% increase in earnings and a 9% jump in revenue.

Over the next five years, Allergan said it now sees compounded earnings per share growth of 20%, compared with the company's prior goal of earnings- per-share growth in the mid-teens, according to Wells Fargo.

Shares of Allergan fell 1.1% to $159.50 on the New York Stock Exchange in late-morning trading on Monday; the stock is up about 44% year-to-date.

Valeant shares fell 1.1% to $129.65; the stock is up 10.4% year-to-date.

Write to Joseph Walker at and Michael Calia at

Corrections & Amplifications

This item was corrected at 1:46 p.m. ET on Tuesday, May 13, 2014 to show that Allergan issued 2015 guidance for the first time Monday. The original incorrectly stated that it raised its guidance.

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