Valeant Makes Hostile Bid - Analyst Blog

Canadian pharmaceuticals company Valeant Pharmaceuticals International, Inc. ( VRX ) recently went hostile with its bid to acquire California-based pharmaceutical company ISTA Pharmaceuticals Inc. ( ISTA ). Valeant Pharma's offer price stands at $6.50 per share with the entire deal being valued at $327 million which includes an approximately $13 million assumption of ISTA's debt.

The $6.50 offer price represents a 67% premium over ISTA's closing share price on December 15, 2011. Valeant has been keen on buying ISTA since October 2011.

Story Behind Hostile Bid

Valeant Pharma said that it launched the hostile bid mainly due to the refusal of ISTA's management to enter into constructive discussions with Valeant Pharma. Valeant Pharma had initially approached ISTA with its $6.50 per share offer on October 5, 2011. The offer was ignored by ISTA. Following the rejection, the offer was made in writing on November 23, 2011.

In response to the offer, ISTA's management said on December 2 that it needed more time to go through the proposal. Valeant again made the same offer on December 12, 2011 only to be rebuffed on December 14. ISTA's Board of Directors called the offer unrealistic stating that the offer undervalues the company. Valeant Pharma stated that the $6.50 offer price remains valid until January 31, 2012.

What Does Valeant Gain?

With this acquisition, Valeant Pharma is looking to establish its presence in the ophthalmic field. Valeant Pharma currently focuses on neurology, dermatology, and branded generics.

Apart from targeting ISTA, Valeant is also looking to strengthen its already formidable presence in the dermatology market in the US through the recent acquisition of Dermik, a dermatology unit of Sanofi ( SNY ).

Our View

While it seems unlikely that Valeant Pharma will be able to acquire ISTA at the current offer price, the stance adopted by Valeant Pharma that it is willing to increase the price under certain circumstances is encouraging. We believe that if the deal ultimately goes through it will do so at close to $10 per share.

Our Recommendation

We currently have a Neutral stance on Valeant Pharma in the long run. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

ISTA PHARMA INC ( ISTA ): Free Stock Analysis Report

SANOFI-AVENTIS ( SNY ): Free Stock Analysis Report

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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