) gained 15.2% after
Valeant Pharmaceuticals International, Inc.
) and Pershing Square Capital Management, L.P made a formal
proposal to acquire the former.
Valeant proposed that each Allergan share would be exchanged
for $48.30 in cash and 0.83 shares of Valeant common stock.
Shares of Valeant were up 7.5% on the proposal. The proposal
allows shareholders to elect a mix of cash and shares.
The offer will allow Allergan shareholders to own
approximately 43% of the combined company.
We note that Pershing Square Capital Management is the largest
shareholder at Allergan with a 9.7% stake. Pershing Square
Capital Management is in favor of the acquisition and has agreed
to elect for only stock consideration in the transaction
Details of the Transaction
Valeant targets operational synergies of $2.7 billion from
costs, with 80% targeted in the first six months while the
remaining 20% is targeted in the following 12 months.
Post completion of the transaction, Valeant expects to
initiate an annual dividend of $0.20 per share, in line with the
current dividend at Allergan.
Concurrent with the acquisition proposal, Valeant updated its
guidance for 2014. Valeant increased its revenue guidance for
2014. The company now expects revenues to come between $8.3
billion and $8.7 billion in 2014, up from the earlier estimate of
$8.2-$8.6 billion. Earnings per share, on a cash basis, is now
projected between $8.55 and $8.80, up from $8.25-$8.75.
Allergan, a global multi-specialty pharmaceutical company,
develops and commercializes innovative products for eye care,
neurological, medical aesthetics, medical dermatology, breast
aesthetics, urological and other specialty markets.
Allergan's key product is Botox which generated revenues of
$1.98 billion in 2013, thereby representing almost 32% of net
product sales. Botox is approved for certain therapeutic and
Meanwhile, Valeant, a Canada-based specialty pharmaceutical
company, has been quite aggressive on the acquisition front in
the last two years contributing to its solid growth. Dermatology
is the key focal area for Valeant.
In Apr 2013, Valeant acquired Obagi Medical Products. Obagi
Medical Products sold products to prevent or improve the most
common and visible skin disorders. In Dec 2012, Valeant acquired
all of the outstanding common stock of Medicis Pharmaceutical
Corporation, which focused on the development and marketing of
products for the treatment of dermatological and aesthetic
conditions in the U.S.
Apart from dermatology, Valeant is also keen on developing its
portfolio in the ophthalmology arena as well. In Aug 2013,
Valeant acquired Bausch + Lomb Holdings Inc. for $8.7 billion in
We believe the combined company will have a stronger presence
in ophthalmology, dermatology, and aesthetics.
Valeant expects to generate 75% of the total revenue from
durable products. As per Valeant, 90% of the revenue of the
combined company is not expected to face any patent cliffs over
the next decade.
However, Allergan has made it clear that it is reluctant to
accept Valeant's offer.
We expect investor focus to remain on further updates from
Valeant and Allergan on the acquisition proposal.
Allergan currently carries a Zacks Rank #2 (Buy) while Valeant
is a Rank #3 (Hold) stock. Right now, stocks like
Johnson & Johnson
Ironwood Pharmaceuticals (IRWD)
look attractive with a Zacks Rank #2.
ALLERGAN INC (AGN): Free Stock Analysis
IRONWOOD PHARMA (IRWD): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
VALEANT PHARMA (VRX): Free Stock Analysis
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