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Valeant Relentless on Acquiring Allergan - Analyst Blog

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Acquisitions/ merger have been quite prevalent in the pharma/biotech sector in the recent times, thereby leading to consolidation in the sector.

In particular, Valeant Pharmaceuticals International, Inc . ( VRX ) has been quite active on the acquisition front in the last couple of years. Valeant is a specialty pharmaceutical company with prime focus on dermatology, neurology and ophthalmology, among others.

After acquiring Bausch+Lomb in 2013, Valeant is now relentlessly making efforts to acquire Allergan, Inc. ( AGN ).

Valeant has yet again increased its offer for Allergan. As per the latest offer, each Allergan share would be exchanged for $72.00 in cash and 0.83 shares of Valeant common stock.

Valeant continues to offer a contingent value right of up to $25.00 per share for Allergan's ophthalmology pipeline candidate, DARPin. The candidate is currently in phase II.

Shareholders of Allergan continue to have the option to elect for cash and/or Valeant stock. We note that Allergan's largest shareholder, Pershing Square Capital Management, L.P, with a 9.7% stake in the company, has agreed to elect only stock consideration in the transaction and exchange their Allergan shares for Valeant shares at a 1.22659 exchange ratio (based on closing share price on May 29).

Valeant was asked to further increase its offer for Allergan by Pershing Square Capital Management for the benefit of other shareholders. The company also met some other Allergan shareholders.

On the other hand, by opting for only the stock consideration of the proposal, Pershing Square Capital Management will receive $20.75 per share less consideration than other shareholders of Allergan, thereby providing more value and cash to other stockholders.

We remind investors that Valeant had proposed in Apr 2014 that each Allergan share would be exchanged for $48.30 in cash and 0.83 shares of Valeant's common stock.

The proposal was then made in alliance with Pershing Square Capital Management.

Last week, Valeant increased its offer price by 21%. Valeant then increased its cash consideration of the offer by $10.00 per share to $58.30. The stock component of the offer remained the same.

In addition, Valeant also stated that it will invest up to $400 million for DARPin's development as well as retain Allergan's employees involved in the same. Valeant will also pay 40% of the net sales of DARPin (potentially estimated at $20 billion by Allergan on May 12, 2014) after recoupment of the development investment.

However, investors were not pleased with the revised offer and hence a further increase in the offer price was on the cards.

In May 2014, Allergan had rejected Valeant's proposal. Allergan's key product, Botox, continues to drive momentum. Allergan believed that the Valeant offer substantially undervalued the company, created significant risks and uncertainties for stockholders, and was not in the best interests of the company and its stockholders.

We expect investor focus to remain on Allergan's response to the latest offer.

Meanwhile, Valeant expects the acquisition, if it goes through, to positively impact the bottom line by 25% on a full-year basis in 2014.

Allergan currently carries a Zacks Rank #1 (Strong Buy) while Valeant is a Rank #3 (Hold) stock. Right now, stocks like Gilead Sciences ( GILD ) and Alexion Pharmaceuticals ( ALXN ) look attractive.

While Gilead Sciences carry a Zacks Rank #1, Alexion Pharma is a Rank #2 (Buy).

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ALLERGAN INC (AGN): Free Stock Analysis Report

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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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