If at first you don’t succeed, try, try again. Just three days ago Quebec based pharmaceuticals company Valeant, led by its aggressive CEO Mike Pearson, upped its takeover offer for California Botox maker Allergan to almost US$50 billion, as Jewish Business News reported here.
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Allergan had recently dismissed the original Valiant offer out of hand, and produced some pretty aggressive defensive public relations of its own, in the form of a quite scathing financial analysis of both Valeant’s bid and Valeant’s own business model as well.
Now while Allergan has simply said it is studying Valeant’s proposal of three days ago, as of course it is legally bound to do before responding, Valeant has already jumped in again and yesterday upped its bid a second time, completely unilaterally, in a bid to get the Allergan Board pf Directors to commence discussions with it.
The new bid comprises cash of US$72 per share for each of Allergan’s 298.3 million shares plus, as before, 0.83 of a Valeant share as well for each Allergan share. The cash portion of the bid is now worth US$21.5 billion therefore. Valeant’s own shares, as of the time of writing, stood at around US$131 per share valuing the share portion of the offer at about US108.70 per Allergan share. This then gives a total bid value of US$180.70 per share, or just under US$54 billion. This is now about 14.9% above Valeant’s offer valuation when they made the original bid.
In addition Valeant still proposes to offer to Allergan’s shareholders a contingent value right on the sales of Allergan’s Darpin eye treatment, possibly some day worth up to a claimed US$25 per share, for a drug which is still at the trial stage. This indeed could still readily be construed quite cynically, perhaps, simply as a way to pay Allergan shareholders with their own money.
Finally, in another small twist, Bill Ackman’s Pershing Square who are backing the Valeant bid, and ran up a significant almost 10% position in Allergan of their own before it was made, have agreed to take all stock for their own position in Allergan, and even to take a 12% discount as well costing them about US$600 million.
According to Bill Ackman, the new move comes as a pre-emptive strike intended to bring Allergan to the table. He also said in an interview, “We’re putting our money where our mouth is, ” adding, “There’s no greater validation for this transaction than our willingness to give up US$600 million to other shareholders and for us to take 100 percent Valeant stock.”
One can conclude a number of things from Valeant upping the ante this way so quickly. First, they really want Allergan and perhaps realise they simply may have underbid at the beginning, thus failing to get the attention of their opponents.
Second, one can also infer that the Allergan defensive strategy of questioning Valeant’s own business model may have hit a very raw nerve with both the Valeant management and its Board of Directors. Finally perhaps, and more importantly, it may have resonated with a number of investors in the financial community as well, to the point where, if Valeant should not now in the end succeed with this bid, it might even face some unpleasant future scrutiny in the investment community down the road.
The worst case result from that could be to turn it from the predator it is today maybe even to a possible target itself instead. So, one can imagine the Allergan Board of Directors will now study the revised offer, as it is obligated to do, and maybe even wait for yet another unsolicited increase to come? `meanwhile they will continue their defensive barrage, which so far at least has seemed to be paying dividends.